ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33164

Domtar Corporation

(Exact name of registrant as specified in its charter)

Delaware

20-5901152

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

395 de Maisonneuve Blvd. West

Montreal, Quebec, H3A 1L6, Canada

(Address of Principal Executive Offices)(Zip Code)

Registrants
telephone number, including area code: (514) 848-5555

Securities registered pursuant to Section 12(b) of the
Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ¨ No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x

As of June 30, 2013, the aggregate market value of the registrants common stock held by non-affiliates of the registrant was
2,149,486,217.

Number of shares of common stock outstanding as of February 19, 2014: 31,961,097.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Proxy Statement, to be filed within 120 days of the close of the registrants fiscal year, in connection with its 2014 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K.

We design, manufacture, market and distribute a wide variety of fiber-based products including communication papers, specialty and packaging papers and absorbent hygiene products. The foundation of our
business is a network of world class wood fiber converting assets that produce paper grade, fluff and specialty pulp. The majority of our pulp production is consumed internally to manufacture paper and consumer products. We are the largest
integrated marketer of uncoated freesheet paper in North America serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end-users. We are also a leading marketer and producer of a broad
line of incontinence care products, marketed primarily under the Attends® brand name, as well as infant diapers.
To learn more, visit www.Domtar.com.

We operate the following business segments: Pulp and Paper and Personal Care. We
had revenues of $5.4 billion in 2013, of which approximately 90% was from the Pulp and Paper segment and approximately 10% was from the Personal Care segment. Our Personal Care segment was formed on September 1, 2011, upon
completion of the acquisition of Attends Healthcare Inc. (Attends US), a manufacturer and supplier of adult incontinence care products in the United States and Canada. On March 1, 2012, we completed the acquisition of Attends
Healthcare Ltd. (Attends Europe), a manufacturer and supplier of adult incontinence care products in Northern Europe. In addition, on May 10, 2012, we completed the acquisition of EAM Corporation (EAM), a manufacturer of
high quality airlaid and ultrathin laminated cores used in feminine hygiene, adult incontinence, infant diapers and other medical healthcare and performance packaging solutions. On July 1, 2013, we completed the acquisition of Associated
Hygienic Products (AHP), a manufacturer and supplier of store brand infant diapers in the United States. The acquired businesses are presented under our Personal Care reportable segment. Information regarding these business acquisitions
is included in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K, under Note 3 Acquisition of Businesses.

Throughout this Annual Report on Form 10-K, unless otherwise specified, Domtar Corporation, the Company, Domtar, we, us and our
refer to Domtar Corporation, its subsidiaries, as well as its investments.

OUR CORPORATE STRUCTURE

At December 31, 2013, Domtar Corporation had a total of 31,857,451 shares of common stock issued and
outstanding, and Domtar (Canada) Paper Inc., an indirectly 100% owned subsidiary, had a total of 561,510 exchangeable shares issued and outstanding. These exchangeable shares are intended to be substantially the economic equivalent to shares of
our common stock and are currently exchangeable at the option of the holder on a one-for-one basis for shares of our common stock. As such, the total combined number of shares of common stock and exchangeable shares issued and outstanding was
32,418,961 at December 31, 2013. Our common shares are traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol UFS and our exchangeable shares are traded on the Toronto Stock Exchange under the
symbol UFX. Information regarding our common stock and the exchangeable shares is included in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K, under Note
21 Shareholders Equity.

On July 31, 2013, we sold our Ariva U.S. business and the results of the former Distribution segment have been reclassified under the
Pulp and Paper segment. We now operate in the two reportable segments as described below. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies.

The following summary briefly describes the operations included in each of our reportable segments:



Pulp and PaperOur Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication and specialty
and packaging papers, as well as softwood, fluff and hardwood market pulp.

Information regarding our reportable segments is included in
Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations as well as Item 8, Financial Statements and Supplementary Data, under Note 24 Segment Disclosures, of this Annual
Report on Form 10-K. Geographic information is also included under Note 24 of the Financial Statements and Supplementary Data.

FINANCIAL HIGHLIGHTS PER SEGMENT

Year
endedDecember 31, 2013

Year
endedDecember 31, 2012

Year
endedDecember 31, 2011

(In millions of dollars, unless otherwise noted)

Sales: (1)

Pulp and Paper

$

4,825

$

5,083

$

5,541

Personal Care

566

399

71

Consolidated sales

$

5,391

$

5,482

$

5,612

Operating income (loss): (1)

Pulp and Paper

$

171

$

330

$

581

Personal Care

43

45

7

Corporate

(53

)

(8

)

4

Total

$

161

$

367

$

592

Segment assets:

Pulp and Paper

$

4,363

$

4,637

$

4,958

Personal Care

1,272

841

458

Corporate

Corporate

643

645

453

Total

$

6,278

$

6,123

$

5,869

(1)

Factors that affected the year-over-year comparison of financial results are discussed in the year-over-year and segment analysis included in Part II, Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operation of this Annual Report on Form 10-K.

PULP AND PAPER

Our Manufacturing Operations

We produce 4.1 million metric tons of hardwood, softwood and fluff pulp at 12 of our 13 mills (Port Huron being
a non-integrated paper mill). The majority of our pulp is consumed internally to manufacture paper and consumer products, with the balance being sold as market pulp. We also purchase papergrade pulp from third parties allowing us to optimize the
logistics of our pulp capacity while reducing transportation costs.

We are the largest integrated marketer and manufacturer of uncoated freesheet paper in North
America. We have 10 pulp and paper mills (eight in the United States and two in Canada), with an annual paper production capacity of approximately 3.4 million tons of uncoated freesheet paper. Our paper manufacturing operations are
supported by 15 converting and distribution operations (including a network of 12 plants located offsite of our paper making operations). Also, we have forms manufacturing operations at three offsite converting and distribution operations.
Approximately 79% of our paper production capacity is in the United States and the remaining 21% is located in Canada.

We produce market pulp in excess of our internal requirements at our three non-integrated pulp mills in Kamloops, Dryden, and Plymouth as well as at our pulp and paper mills in Ashdown, Espanola,
Hawesville, Windsor, Marlboro and Nekoosa. We sell approximately 1.6 million metric tons of pulp per year depending on market conditions. Approximately 50% of our trade pulp production capacity is in the U.S., and the
remaining 50% is located in Canada.

The table below lists our operating pulp and paper mills and their annual
production capacity:

Saleable

Production Facility

Fiberline Pulp Capacity

Paper (1)

# lines

(000 ADMT) (2)

# machines

Category (3)

(000 ST) (2)

Uncoated freesheet

Ashdown, Arkansas

3

707

3

Communication

629

Windsor, Quebec

1

440

2

Communication

641

Hawesville, Kentucky

1

426

2

Communication

572

Kingsport, Tennessee

1

284

1

Communication

417

Johnsonburg, Pennsylvania

1

230

2

Communication

356

Marlboro, South Carolina

1

317

1

Specialty & Packaging

264

Nekoosa, Wisconsin

1

151

3

Specialty & Packaging

156

Rothschild, Wisconsin

1

65

1

Communication

136

Port Huron, Michigan





4

Specialty & Packaging

112

Espanola, Ontario

2

332

2

Specialty & Packaging

72

Total Uncoated freesheet

12

2,952

21

3,355

Pulp

Kamloops, British Columbia

1

353





Dryden, Ontario

1

327





Plymouth, North Carolina

2

448





Total Pulp

4

1,128





Total

16

4,080

21

3,355

Total Trade Pulp (4)

1,606

Pulp purchases

118

Net pulp

1,488

(1)

Paper capacity is based on an operating schedule of 360 days and the production at the winder.

The manufacturing of pulp and paper requires wood fiber, chemicals and energy. We discuss these three major raw materials used in our manufacturing operations below.

Wood Fiber

United States pulp
and paper mills

The fiber used by our pulp and paper mills in the United States is hardwood and softwood, both being
readily available in the market from multiple third-party sources. The mills obtain fiber from a variety of sources, depending on their location. These sources include a combination of supply contracts, wood lot management arrangements, advance
stumpage purchases and spot market purchases.

Canadian pulp and paper mills

The fiber used at our Windsor pulp and paper mill is hardwood originating from a variety of sources, including purchases on the open
market in Canada and the United States, contracts with Quebec wood producers marketing boards, public land where we have wood supply allocations and from Domtars private lands. The softwood and hardwood fiber for our Espanola pulp and
paper mill and the softwood fiber for our Dryden pulp mill, are obtained from third parties, directly or indirectly from public lands and through designated wood supply allocations for the pulp mills. The fiber used at our Kamloops pulp mill is all
softwood, originating mostly from third-party sawmilling operations in the southern-interior part of British Columbia.

Cutting rights on public lands related to our pulp and paper mills in Canada represent about 1.2 million cubic meters of softwood
and 0.7 million cubic meters of hardwood, for a total of 1.9 million cubic meters of wood per year. Access to harvesting of fiber on public lands in Ontario and Quebec is subject to licenses and review by the respective governmental
authorities.

During 2013, the cost of wood fiber relating to our Pulp and Paper segment comprised
approximately 20% of the total consolidated cost of sales.

Chemicals

We use various chemical compounds in our pulp and paper manufacturing operations that we purchase, primarily on a central basis, through
contracts varying between one and ten years in length to ensure product availability. Most of the contracts have pricing that fluctuates based on prevailing market conditions. For pulp manufacturing, we use numerous chemicals
including caustic soda, sodium chlorate, sulfuric acid, lime and peroxide. For paper manufacturing, we also use several chemical products including starch, precipitated calcium carbonate, optical brighteners, dyes and aluminum sulfate.

During 2013, the cost of chemicals relating to our Pulp and Paper segment comprised approximately 13% of the total consolidated
cost of sales.

Energy

Our operations consume substantial amounts of fuel including biomass, natural gas, coal and fuel oil, as well as electricity. About 75% of the total energy required to manufacture our products
comes from renewable fuels such as bark and spent pulping liquor generated as byproducts of our manufacturing processes. The remainder of the energy comes from purchased electricity and fossil fuels such as natural gas, coal and fuel oil procured
under supply contracts. Under most of these contracts, suppliers are committed to provide quantities within pre-determined ranges that provide us with our needs for a particular type of fuel at a specific facility. Most of these contracts have
pricing that fluctuates based on prevailing market conditions. Biomass, natural gas, coal and fuel oil are consumed primarily to produce steam that is used in the manufacturing process and, to a lesser extent, to provide direct heat used in the
chemical recovery process.

We own power generating assets, including steam turbines, at all of our integrated pulp and
paper mills, as well as hydro assets at three locations: Espanola, Nekoosa and Rothschild. Electricity is primarily used to drive motors, pumps and other equipment, as well as provide lighting. Approximately 70% of our electricity
requirements are produced internally. We purchase the balance of our electricity requirements from local utilities.

During
2013, energy costs relating to our Pulp and Paper segment comprised approximately 6% of the total consolidated cost of sales.

Our Transportation

Transportation of raw materials, wood fiber, chemicals and pulp into our mills is mostly done by rail and trucks, although barges are used
in certain circumstances. We rely strictly on third parties for the transportation of our pulp and paper products between our mills, converting operations, distribution centers and customers. Our paper products are shipped mostly by truck and
logistics are managed centrally in collaboration with each location. Our pulp is either shipped by vessel, rail or truck. We work with all the major railroads and approximately 300 trucking companies in the United States and Canada. The length of
our carrier contracts are generally from one to three years. We pay diesel fuel surcharges which vary depending on market conditions, and the cost of diesel fuel.

During 2013, outbound transportation costs relating to our Pulp and Paper segment comprised approximately 10% of the total consolidated cost of sales.

Our Product Offering and Go-to-Market Strategy

Our uncoated freesheet papers are categorized into communication and specialty and packaging papers. Communication papers are further categorized into business and commercial printing and publishing
applications.

Our business papers include copy and electronic imaging papers, which are used with ink jet and laser
printers, photocopiers and plain-paper fax machines, as well as computer papers, preprinted forms and digital papers. These products are primarily for office and home use. Business papers accounted for approximately 46% of our shipments of
paper products in 2013.

Our commercial printing and publishing papers include uncoated freesheet papers, such as
offset papers and opaques. These uncoated freesheet grades are used in sheet and roll fed offset presses across the spectrum of commercial printing end-uses, including digital printing. Our publishing papers include tradebook and lightweight
uncoated papers used primarily in book publishing applications such as textbooks, dictionaries, catalogs, magazines, hard cover novels and financial documents. Design papers, a sub-group of commercial printing and publishing papers, have distinct
features of color, brightness and texture and are targeted towards graphic artists, design and advertising agencies, primarily for special brochures and annual reports. These products also include base papers that are converted into finished
products, such as envelopes, tablets, business forms and data processing/computer forms. Commercial printing and publishing papers accounted for approximately 39% of our shipments of paper products in 2013.

We also produce paper for several specialty and packaging markets. These products consist primarily of thermal printing,
flexible packaging, food packaging, medical packaging, medical gowns and drapes, sandpaper backing, carbonless printing, labels and other coating and laminating applications. We also manufacture papers for industrial and specialty applications
including carrier papers, treated papers, security papers and specialized printing and converting applications. These specialty and packaging papers accounted for approximately 15% ofour shipments of paper products in 2013.
These grades of papers require a certain amount of innovation and agility in the manufacturing system.

The chart below illustrates our main paper products and their applications:

Communication Papers

Specialty and Packaging Papers

Category

Business Papers

Commercial Printing andPublishing Papers

Type

Uncoated Freesheet

Uncoated Freesheet

Grade

Copy

Premium imaging

Technology papers

Offset

Colors

Index

Tag

Bristol

Opaques

Premium opaques

Lightweight

Tradebook

Thermal papers

Food packaging

Bag stock

Security papers

Imaging papers

Label papers

Medical disposables

Application

Photocopies

Office documents

Presentations

Presentations

Reports

Commercial

printing

Direct mail

Pamphlets

Brochures

Cards

Posters

Stationery

Brochures

Annual reports

Books

Catalogs Forms & Envelopes

Food & candy packaging

Fast food takeout bag stock

Check and security papers

Surgical gowns

Our customer service personnel work closely with sales, marketing and production staff to provide service
and support to merchants, converters, end-users, stationers, printers and retailers. We promote our products directly to end-users and others who influence paper purchasing decisions in order to enhance brand recognition and increase product demand.
In addition, our sales representatives work closely with mill-based new product development personnel and undertake joint marketing initiatives with customers in order to better understand their businesses and needs and to support their future
requirements.

We sell business papers primarily to paper stationers, merchants, office equipment manufacturers and retail
outlets. We distribute uncoated commercial printing and publishing papers to end-users and commercial printers, mainly through paper merchants, as well as selling directly to converters. We sell our specialty and packaging papers mainly to
converters, who apply a further production process such as coating, laminating, folding or waxing to our papers before selling them to a variety of specialized end-users. We distributed approximately 32% of our paper products in 2013
through a large network of paper merchants operating throughout North America.

We sell market pulp to customers in North America mainly through a North American sales
force while sales to most overseas customers are made directly or through commission agents. We maintain pulp supplies at strategically located warehouses, which allow us to respond to orders on short notice. In 2013, approximately 34% of
our external sales of pulp were domestic, 9% were in Canada and 57% were in other countries.

Our ten largest
customers represented approximately 40% of our 2013 Pulp and Paper segment sales or 35% of our total sales in 2013. In 2013, Staples, one of our customers of our Pulp and Paper segment represented approximately 10% of our total sales.
The majority of our customers purchase products through individual purchase orders. In 2013, approximately 76% of our Pulp and Paper segment sales were domestic, 13% were in Canada, and 11% were in other countries.

PERSONAL CARE

Our Operations

Our Personal Care business consists of
the design, manufacturing, marketing and distribution of adult incontinence products and absorbent hygiene products, marketed primarily under the Attends® brand name, as well as infant diapers. We are one of the leading suppliers of adult incontinence products sold into North America and Northern Europe, serving
institutional and consumer channels. In 2013, we increased our footprint and product range with the completion of the acquisition of Associated Hygienic Products (AHP) on July 1, 2013. AHP is one of the largest suppliers of store
brand infant diapers in the United States.

We operate four manufacturing facilities, with each having the ability to produce
multiple product categories. We have a research and development facility and production lines which manufacture high quality airlaid and ultrathin laminated absorbent cores and we also have research and development activities in our divisional head
office in Raleigh, North Carolina.

We operate in the United States and in Europe:



Greenville, North Carolina



Waco, Texas



Delaware, Ohio



Aneby, Sweden



Jesup, Georgia

Our
Industry Dynamics

Aging population

We compete in an industry with fundamental drivers for long-term growth. The worldwide aging population suggests that adult incontinence will become much more prevalent over the next several decades, as
baby boomers enter their senior years and medical advances continue to extend the average lifespan. As an example, the National Association for Continence (NAFC) estimates that 10,000 Americans are turning 65 years old every day, or
3.65 million people per year. By the year 2030, approximately 71 million Americans are estimated to be 65 years old or older, representing over 20% of the United States population. It is estimated that approximately 5% of the world
population, or 340 million individuals, is incontinent. After age 65, nearly one in three people are estimated to suffer from incontinence.

We are expected to benefit from the overall increase in national healthcare spending, which is due to an aging population and is aided by
the recent federal legislative expansion of health insurance coverage in the United States. Spending will likely increase as health insurance coverage is expanded and the number of insured patients with the improved ability to access healthcare
products and services increases. The healthcare spending increase is expected to positively impact each of the channels that we serve.

Infant Products

With
the acquisition of AHP, we now compete within the competitive and volatile store brand segment of infant diapers and training pants. Future demand is forecasted to be flat in North America; however, store brand infant diaper is the most important
segment within the retail absorbent hygiene category due to the shopper profile of its customers. The business is focused around a small number of large retailers that control the majority of the volume in North America which is driven by multi-year
contracts, and leads to the competitiveness and volatility in the industry. We believe the addition of the infant product assortment to our existing platform provides our customers with the complete bundle of products at a scale required to meet
their national distribution requirements.

Our Raw Materials

The primary raw materials used in our manufacturing process are nonwovens, fluff pulp (significant portion is supplied internally), super absorbent polymers, polypropylene film, elastics, adhesives and
packaging materials that are purchased on a central basis with contracts varying between one and five years. Most contracts have prices that fluctuate based on prevailing market conditions.

Our Product Offering and Go-to-Market Strategy

Our products, which include
branded and private label briefs, protective underwear, underpads, pads and washcloths, as well as baby diapers and infant training pants, are available in a variety of sizes, as well as with differing performance levels and product attributes. Our
broad product portfolio covers most price points across each product category.

We serve four channels: acute care, long-term
care, homecare, and retail. Through the utilization of our flexible production platform, manufacturing expertise and efficient supply chain management, we are able to provide a complete and high-quality line of branded and unbranded products to
customers across all channels. We maintain a direct sales organization in the United States, Canada and nine Northern European countries.

Our Product Development

We currently offer a comprehensive, full suite of products, and we continue to focus on product development to produce even more effective
products for our customers. We continue to explore materials and processes that will allow us to manufacture products that absorb wetness quickly, while providing industry leading skin-dryness and superior containment.

Recent Development

Acquisition of
Laboratorios Indas

On January 2, 2014, we completed the acquisition of Laboratorios Indas, S.A.U.
(Indas), a branded incontinence products manufacturer and marketer in Spain. Indas has approximately 440 employees and operates

two manufacturing facilities in Spain. The results of the Indas operations will be included in the Personal Care segment starting January 2, 2014. The purchase price is estimated to be
$546 million (399 million) in cash, net of cash acquired of $46 million (34 million). We have not completed the valuation of assets acquired and liabilities assumed; however, we anticipate providing a preliminary purchase price
allocation in our 2014 first quarter Form 10-Q filing.

OUR STRATEGIC INITIATIVES AND FINANCIAL PRIORITIES

As a leading innovative fiber-based technology company, we strive to be the supplier of choice for our customers, to be a
core investment for our shareholders and to be recognized as an industry leader in sustainability. We have three unwavering business objectives: (1) to grow and find ways to become less vulnerable to the secular decline in communication paper
demand, (2) to reduce volatility in our earnings profile by increasing the visibility and predictability of our cash flows, and (3) to create value over time by ensuring that we maximize the strategic and operational use of our capital.

To achieve these goals, we have established the following business strategies:

Perform: Drive performance in everything we do, focusing on customers, costs and cash. We are determined to operate our
assets efficiently and to ensure we balance our production with our customer demand in papers. To generate cash flow, we are focused on assigning our capital expenditures effectively and minimizing working capital requirements. We apply prudent
financial management policies to retain the flexibility needed to successfully execute on our strategic roadmap.

Grow:
To counteract the secular demand decline in our communication paper products and sustain the success of our company, we believe that we must leverage our core competencies and expertise as operators of large scale operations in fiber
sourcing and in the marketing, manufacturing and distribution of fiber-based products. We are focused on optimizing and expanding our operations in markets with positive demand dynamics through the repurposing of assets, through investments to
organically grow or through strategic acquisitions.

Break Out: Through agility and innovation, move from a
paper to a fiber-centric organization by seeking opportunities to break out from traditional pulp and paper making. We continue to explore opportunities to invest in innovative fiber-based technologies to bring our business in new directions and
leverage our expertise and our assets to extract the maximum value for the wood fiber we consume in our operations.

Grow our line of environmentally and ethically responsible products: We believe we are delivering best-in-class service to customers through a broad range of certified products. The
development of EarthChoice®, our line of environmentally and socially responsible paper, is providing a platform
upon which to expand our offering to customers. This product line is supported by leading environmental groups and offers customers the solutions and peace of mind through the use of a combination of Forest Stewardship Council® (FSC®) virgin fiber and recycled fiber.

Operate in a responsible way: We try to make a positive difference every day by pursuing sustainable growth, valuing
relationships, and responsibly managing our resources. We care for our customers, end-users and stakeholders in the communities where we operate, all seeking assurances that resources are managed in a sustainable manner. We strive to provide these
assurances by certifying our distribution and manufacturing operations and measuring our performance against internationally recognized benchmarks. We are committed to the responsible use of forest resources across our operations and we are enrolled
in programs and initiatives to encourage landowners engaged towards certification to improve their market access and increase their revenue opportunities.

The markets in which our businesses operate are highly competitive with well-established domestic and foreign manufacturers.

In the paper business, our paper production does not rely on proprietary processes or formulas, except in highly specialized papers or
customized products. In uncoated freesheet, we compete primarily on the basis of product quality, breadth of offering, service solutions and competitively priced paper products. We seek product differentiation through an extensive offering of high
quality FSC-certified paper products. While we have a leading position in the North American uncoated freesheet market, we also compete with other paper grades, including coated freesheet, and with electronic transmission and document storage
alternatives. As the use of these alternative products continues to grow, we continue to see a decrease in the overall demand for paper products or shifts from one type of paper to another. All of our pulp and paper manufacturing facilities are
located in the United States or in Canada where we sell 88% of our products. The five largest manufacturers of uncoated freesheet papers in North America represent approximately 81% of the total production capacity. On a global basis,
there are hundreds of manufacturers that produce and sell uncoated freesheet papers. The level of competitive pressures from foreign producers in the North American market is highly dependent upon exchange rates, including the rate between the U.S.
dollar and the Euro as well as the U.S. dollar and the Brazilian real.

The market pulp we sell is either fluff, softwood or
hardwood pulp. The pulp market is highly fragmented with many manufacturers competing worldwide. Competition is primarily on the basis of access to low-cost wood fiber, product quality and competitively priced pulp products. The fluff pulp we sell
is used in absorbent products, incontinence products, diapers and feminine hygiene products. The softwood and hardwood pulp we sell is primarily slow growth northern bleached softwood and hardwood kraft, and we produce specialty engineered pulp
grades with a pre-determined mix of wood species. Our hardwood and softwood pulps are sold to customers who make a variety of products for specialty paper, packaging, tissue and industrial applications, and customers who make printing and writing
grades. We also seek product differentiation through the certification of our pulp mills to the FSC chain-of-custody standard and the procurement of FSC-certified virgin fiber. All of our market pulp production capacity is located in the United
States or in Canada, and we sell 57% of our pulp to other countries.

In the adult incontinence business in North America, the
top 5 manufacturers supply approximately 90% of the market and have done so for at least the last 10 years. Competition is along the line of four major product categories  protective underwear, light pads, briefs and underpads
with customers split between retail and institutional channels. The retail channel has the majority of sales concentrated in mass marketers and drug stores. The institutional channel includes extended care (long term care and homecare) and acute
care facilities. In the adult incontinence business in Europe, we compete in the Western, Northern and Central Europe markets where the top 5 manufacturers supply approximately 80% of the healthcare channel and 99% of the retail channel. Competition
is along the line of four major product categories: pads, pull-ons, briefs and underpads, with customers mostly split between mass retail, prescription and closed contract. The mass retail market is more fragmented than in North American markets
with a mix of larger chains and smaller players. Approximately 70% of institutional and homecare expenditures are funded by governments in Western Europe. In the infant diaper business in North America, the top 2 manufacturers supply approximately
80% of the market share with branded labels. The remaining 20% represented by private label, is split among the competition. Competition is along the line of three major product categories  diapers, training pants and youth pants. Products are
marketed in multiples channels  mass, dollar stores, grocery, club, internet and home health care. In the adult incontinence business as well as in the infant diapers business, the principal methods and elements of competition include brand
recognition and loyalty, product innovation, quality and performance, price and marketing and distribution capabilities.

We have over 9,400 employees, of which approximately 64% are employed in the United States, 30% in Canada, 5% in Europe and
1% in Asia. Approximately 50% of our employees are covered by collective bargaining agreements, generally on a facility-by-facility basis. Certain agreements covering approximately 1,800 employees will expire in 2014 and others will expire
between 2015 and 2017.

OUR APPROACH TO SUSTAINABILITY

Domtar delivers a higher, lasting value to our customers, employees, shareholders and communities by viewing our business decisions within
the larger context of sustainability. As a renewable fiber-based company, we take the long-term view on managing natural resources for the future. We prize efficiency in everything we do. We strive to minimize waste and encourage recycling. We have
the highest standards for ethical conduct, for caring about the health and safety of each other, and for maintaining the environmental quality in the communities where we live and work. We value the partnerships we have formed with non-governmental
organizations and believe they make us a better company, even if we do not always agree on every issue. We pay attention to being agile to respond to new opportunities, and we are focused in order to turn innovation into value creation. By embracing
sustainability as our operating philosophy, we seek to internalize the fact that the choices we have and the impact of the decisions we make on our stakeholders are all interconnected. Further, we believe that our business and the people and
communities who depend upon us are better served as we weave this focus on sustainability into the things we do.

Domtar
effects this commitment to sustainability at every level and every location across the company. With the support of the Board of Directors, our Management Committee empowers senior managers from manufacturing, technology, finance, sales and
marketing and corporate staff functions to regularly come together and establish key sustainability performance metrics, and to routinely assess and report on progress. In 2011, Domtar decided to establish a new, vice-president position to help lead
this effort, allowing the companys organizational structure to better reflect the priority focus the company places on sustainable performance. At the same time, recognizing that the promise of sustainability is only achieved if it is woven
into the fiber of an organization, Domtar is committed to establishing EarthChoice Ambassadors  sustainability leaders and advocates  in every one of the companys locations. We believe that weaving sustainability into our business
positions Domtar for the future.

OUR ENVIRONMENTAL CHALLENGES

Our business is subject to a wide range of general and industry-specific laws and regulations in the United States and other countries
where we have operations, relating to the protection of the environment, including those governing harvesting, air emissions, climate change, waste water discharges, the storage, management and disposal of hazardous substances and wastes,
contaminated sites, landfill operation and closure obligations and health and safety matters. Compliance with these laws and regulations is a significant factor in the operation of our business. We may encounter situations in which our operations
fail to maintain full compliance with applicable environmental requirements, possibly leading to civil or criminal fines, penalties or enforcement actions, including those that could result in governmental or judicial orders that stop or interrupt
our operations or require us to take corrective measures at substantial costs, such as the installation of additional pollution control equipment or other remedial actions.

Compliance with environmental laws and regulations involves capital expenditures as well as additional operating costs. Additional information regarding environmental matters is included in Part I,
Item 3, Legal Proceedings, under the caption Climate change regulation and in Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K,
under the section of Critical accounting policies, caption Environmental matters and other asset retirement obligations.

Many of our brand name products are protected by registered trademarks. Our key trademarks include Cougar®, Lynx® Opaque Ultra, Husky® Opaque
Offset, First Choice®, Domtar EarthChoice®, Attends®, NovaThin®, NovaZorb® and Ariva®. These brand names
and trademarks are important to the business. Our numerous trademarks have been registered in the United States and/or in other countries where our products are sold. The current registrations of these trademarks are effective for various periods of
time. These trademarks may be renewed periodically, provided that we, as the registered owner, and/or licensee comply with all applicable renewal requirements, including the continued use of the trademarks in connection with similar goods.

We own U.S. and foreign patents, and have several pending patent applications. Our management regards these patents and
patent applications as important but does not consider any single patent or group of patents to be materially important to our business as a whole.

INTERNET AVAILABILITY OF INFORMATION

In this
Annual Report on Form 10-K, we incorporate by reference certain information contained in other documents filed with the Securities and Exchange Commission (SEC) and we refer you to such information. We file annual, quarterly and current
reports and other information with the SEC. You may read and copy any materials we file with the SEC at the SECs Public Reference Room at 100F Street, NE, Washington DC, 20549. You may obtain information on the operation of the Public
Reference Room by calling 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains our quarterly and current reports, proxy and information statements, and other information we file electronically with the SEC. You may also
access, free of charge, our reports filed with the SEC through our website. Reports filed or furnished to the SEC will be available through our website as soon as reasonably practicable after they are filed or furnished to the SEC. The information
contained on our website, www.domtar.com, is not, and should in no way be construed as, a part of this or any other report that we filed with or furnished to the SEC.

OUR EXECUTIVE OFFICERS

John D. Williams,
age 59, has been president, chief executive officer and a director of the Company since January 1, 2009. Previously, Mr. Williams served as president of SCA Packaging Europe between 2005 and 2008. Prior to assuming his leadership
position with SCA Packaging Europe, Mr. Williams held increasingly senior management and operational roles in the packaging business and related industries.

Melissa Anderson, age 49, is the senior vice-president, human resources of the Company. Ms. Anderson joined Domtar in January 2010. Previously, she was senior vice-president, human
resources and government relations, at The Pantry, Inc., an independently operated convenience store chain in the southeastern United States. Prior to this, she held senior management positions with International Business Machine (IBM)
over the span of 19 years.

Daniel Buron, age 50, is the senior vice-president and chief financial officer of
the Company. Mr. Buron was senior vice-president and chief financial officer of Domtar Inc. since May 2004. He joined Domtar Inc. in 1999. Prior to May 2004, he was vice-president, finance, pulp and paper sales division and, prior to
September 2002, he was vice-president and controller. He has over 25 years of experience in finance.

Michael
Fagan, age 52, is the senior vice-president, personal care of the Company. Mr. Fagan joined Domtar in 2011, following the acquisition of Attends Healthcare Products, Inc. Mr. Fagan has been with Attends since 1999, when he was hired as
Senior Vice President of Sales and Marketing. He was promoted to President and CEO in 2006. Prior to joining Attends, Mr. Fagan held a variety of sales development roles with Procter & Gamble, the previous owners of the Attends line of
products.

Zygmunt Jablonski, age 60, is the senior vice-president, law and corporate
affairs of the Company. Mr. Jablonski joined Domtar in 2008, after serving in various in-house counsel positions for major manufacturing and distribution companies in the paper industry for 13 years. From 1985 to 1994, he practiced law in
Washington, DC.

Patrick Loulou, age 45, is the senior vice-president, corporate development since he joined
the Company in March 2007. Previously, he held a number of positions in the telecommunications sector as well as in management consulting. He has over 15 years of experience in corporate strategy and business development.

Richard L. Thomas, age 60, is the senior vice-president, sales and marketing of the Company. Mr. Thomas was
vice-president of fine papers of Weyerhaeuser since 2005. Prior to 2005, he was vice-president, business papers of Weyerhaeuser. Mr. Thomas joined Weyerhaeuser in 2002 when Willamette Industries, Inc. was acquired by Weyerhaeuser. At
Willamette, he held various management positions in operations since joining in 1992. Previously, he was with Champion International Corporation for 12 years.

FORWARD-LOOKING STATEMENTS

The information
included in this Annual Report on Form 10-K may contain forward-looking statements relating to trends in, or representing managements beliefs about, Domtar Corporations future growth, results of operations, performance and business
prospects and opportunities. These forward-looking statements are generally denoted by the use of words such as anticipate, believe, expect, intend, aim, target,
plan, continue, estimate, project, may, will, should and similar expressions. These statements reflect managements current beliefs and are based on information
currently available to management. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties and
other factors that could cause actual results to differ materially from historical results or those anticipated. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any
occurs, what effect they will have on Domtar Corporations results of operations or financial condition. These factors include, but are not limited to:



continued decline in usage of fine paper products in our core North American market;

changes in asset valuations, including write downs of property, plant and equipment, inventory, accounts receivable or other assets for impairment or
other reasons;



changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Canadian dollar and European currencies;



the effect of timing of retirements and changes in the market price of Domtar Corporations common stock on charges for stock-based compensation;



performance of pension fund investments and related derivatives, if any; and



the other factors described under Risk Factors, in Part I, Item 1A of this Annual Report on
Form 10-K.

You are cautioned not to unduly rely on such
forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Annual Report on Form 10-K. Unless specifically required by law, Domtar Corporation assumes no obligation to update or revise these
forward-looking statements to reflect new events or circumstances.

ITEM 1A.

RISK FACTORS

You should
carefully consider the risks described below in addition to the other information presented in this Annual Report on Form 10-K.

RISKS
RELATING TO THE INDUSTRIES AND BUSINESSES OF THE COMPANY

The Companys paper products are vulnerable to long-term declines in
demand due to competing technologies or materials.

The Companys paper business competes with electronic transmission
and document storage alternatives, as well as with paper grades it does not produce, such as uncoated groundwood. As a result of such competition, the Company is experiencing on-going decreasing demand for most of its existing paper products. As the
use of these alternatives grows, demand for paper products is likely to further decline. Declines in demand for our paper products may adversely affect the Companys business, results of operations and financial position.

Failure to successfully implement the Companys business diversification initiatives could have a material adverse affect on its business,
financial results or condition.

The Company is pursuing strategic initiatives that management considers important to our
long-term success. The most recent initiatives include, but are not limited to, the acquisition of adult incontinence and baby diaper businesses and the conversion of a commodity paper mill to produce lighter basis weight specialty paper. The intent
of these initiatives is to help grow the business and counteract the secular decline in our core North American paper business. These initiatives may involve organic growth, select joint ventures and strategic acquisitions. The success of these
initiatives will depend, among other things, on our ability to identify potential strategic initiatives, understand the key trends and principal drivers affecting businesses to be acquired and to execute the initiatives in a cost effective manner.
There are significant risks involved with the execution of these initiatives, including significant business, economic and competitive uncertainties, many of which are outside of our control.

Strategic acquisitions may expose us to additional risks. We may have to compete for acquisition targets and any acquisitions we make may
fail to accomplish our strategic objectives or may not perform as expected. In addition, the costs of integrating an acquired business may exceed our estimates and may take significant time and attention from senior management. Accordingly, we
cannot predict whether we will succeed in implementing these strategic initiatives. If we fail to successfully diversify our business, it may have a material adverse effect on our competitive position, financial condition and operating results.

The pulp and paper industry is highly cyclical. Fluctuations in the prices of and the demand for the
Companys pulp and paper products could result in lower sales volumes and smaller profit margins.

The pulp and paper
industry is highly cyclical. Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for the Companys pulp and paper
products. The length and magnitude of industry cycles have varied over time and by product, but generally reflect changes in macroeconomic conditions and levels of industry capacity. Most of the Companys paper products are commodities that are
widely available from other producers. Even the Companys non-commodity products, such as value-added papers, are susceptible to commodity dynamics. Because commodity products have few distinguishing qualities from producer to producer,
competition for these products is based primarily on price, which is determined by supply relative to demand.

The overall
levels of demand for the pulp and paper products the Company manufactures and distributes, and consequently its sales and profitability, reflect fluctuations in levels of end-user demand, which depend in part on general macroeconomic conditions in
North America and worldwide, the continuation of the current level of service and cost of postal services, as well as competition from electronic substitution. See Conditions in the global capital and credit markets, and the economy generally,
can adversely affect the Company business, results of operations and financial position and The Companys paper products are vulnerable to long-term declines in demand due to competing technologies or materials.

Industry supply of pulp and paper products is also subject to fluctuation, as changing industry conditions can influence producers to
idle or permanently close individual machines or entire mills. Such closures can result in significant cash and/or non-cash charges. In addition, to avoid substantial cash costs in connection with idling or closing a mill, some producers will choose
to continue to operate at a loss, sometimes even a cash loss, which could prolong weak pricing environments due to oversupply. Oversupply can also result from producers introducing new capacity in response to favorable short-term pricing trends.

Industry supply of pulp and paper products is also influenced by overseas production capacity, which has grown in recent
years and is expected to continue to grow.

As a result, prices for all of the Companys pulp and paper products are
driven by many factors outside of its control, and the Company has little influence over the timing and extent of price changes, which are often volatile. Because market conditions beyond the Companys control determine the prices for its
commodity products, the price for any one or more of these products may fall below its cash production costs, requiring the Company to either incur cash losses on product sales or cease production at one or more of its pulp and paper manufacturing
facilities. The Company continuously evaluates potential adjustments to its production capacity, which may include additional closures of machines or entire mills, and the Company could recognize significant cash and/or non-cash charges relating to
any such closures in future periods. See Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operation, under Closure and restructuring activities and impairment and write-down of
property, plant and equipment and intangible assets. Therefore, the Companys profitability with respect to these products depends on managing its cost structure, particularly wood fiber, chemical and energy costs, which represent the
largest components of its operating costs and can fluctuate based upon factors beyond its control, as described below. If the prices of or demand for its pulp and paper products decline, or if its wood fiber, chemical or energy costs increase, or
both, its sales and profitability could be materially and adversely affected.

Conditions in the global and political economic environment,
including the global capital and credit markets and the economy generally, can adversely affect the Companys business, results of operations and financial position.

A significant or prolonged downturn in general economic environment may affect the Companys sales and profitability. The Company has exposure to counterparties with which we routinely execute
transactions. Such counterparties include commercial banks, insurance companies and other financial institutions, some of which

may be exposed to bankruptcy or liquidity risks. While the Company has not realized any significant losses to date, a bankruptcy or illiquidity event by one of its significant counterparties may
materially and adversely affect the Companys access to capital, future business and results of operations.

In addition,
our customers and suppliers may be adversely affected by severe economic conditions. This could result in reduced demand for our products or our inability to obtain necessary supplies at reasonable costs or at all.

We may be negatively impacted by political issues or crises in individual countries or regions, including sovereign risk related to a
default by or deterioration in the credit worthiness of local governments.

Certain countries in Europe provide medicare
coverage for adult incontinence products. The governments of these countries may decide to no longer reimburse part or all of the costs of adult incontinence products, and this may have a negative impact on our profitability in the future.

The Company faces intense competition in its markets, and the failure to compete effectively would have a material adverse effect on its
business and results of operations.

The Company competes with both U.S. and Canadian producers and, for many of its
product lines, global producers, some of which may have greater financial resources and lower production costs than the Company. The principal basis for competition is selling price. The Companys ability to maintain satisfactory margins
depends in large part on its ability to control its costs. The Company cannot provide assurance that it will compete effectively and maintain current levels of sales and profitability. If the Company cannot compete effectively, such failure will
have a material adverse effect on its business and results of operations.

The Companys pulp and paper businesses may have difficulty
obtaining wood fiber at favorable prices, or at all.

Wood fiber is the principal raw material used by our pulp and paper
businesses, comprising approximately 20% of the consolidated cost of sales during 2013. Wood fiber is a commodity, and prices historically have been cyclical. The primary source for wood fiber is timber. Environmental litigation and regulatory
developments, alternative use for energy production and reduction in harvesting related to the housing market, have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in the United
States and Canada. In addition, future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, the promotion of forest health and the response to and prevention of catastrophic
wildfires could also affect timber supplies. Availability of harvested timber may be further limited by adverse weather, fire, insect infestation, disease, ice storms, wind storms, flooding and other natural and man-made causes, thereby reducing
supply and increasing prices. Wood fiber pricing is subject to regional market influences, and the Companys cost of wood fiber may increase in particular regions due to market shifts in those regions. Any sustained increase in wood fiber
prices would increase the Companys operating costs, and the Company may be unable to increase prices for its products in response to increased wood fiber costs due to additional factors affecting the demand or supply of these products.

The Company currently meets its wood fiber requirements by purchasing wood fiber from third parties and by harvesting timber
pursuant to its forest licenses and forest management agreements. If the Companys cutting rights, pursuant to its forest licenses or forest management agreements are reduced, or any third-party supplier of wood fiber stops selling or is unable
to sell wood fiber to the Company, our financial condition or results of operations could be materially and adversely affected.

An increase in the cost of the Companys purchased energy or other raw materials would lead to
higher manufacturing costs, thereby reducing its margins.

The Companys operations consume substantial amounts of
energy such as electricity, natural gas, fuel oil, coal and hog fuel. Energy prices, particularly for electricity, natural gas and fuel oil, have been volatile in recent years. As a result, fluctuations in energy prices will impact the
Companys manufacturing costs and contribute to earnings volatility. While the Company purchases substantial portions of its energy under supply contracts, most of these contracts are based on market pricing.

Other raw materials the Company uses include various chemical compounds, such as precipitated calcium carbonate, sodium chlorate and
sodium hydroxide, sulfuric acid, dyes, peroxide, methanol and aluminum sulfate. In Personal Care, other raw materials include super absorbent polymers and nonwovens, which are petroleum based materials. The costs of these other raw materials have
been volatile historically, and they are influenced by capacity utilization, energy prices and other factors beyond the Companys control.

Due to the commodity nature of the Companys products, the relationship between industry supply and demand for these products, rather than solely changes in the cost of raw materials, will determine
the Companys ability to increase prices. Consequently, the Company may be unable to pass on increases in its operating costs to its customers. Any sustained increase in other raw materials or energy prices without any corresponding increase in
product pricing would reduce the Companys operating margins and may have a material adverse effect on its business and results of operations.

The Company depends on third parties for transportation services.

The
Company relies primarily on third parties for transportation of the products it manufactures and/or distributes, as well as delivery of its raw materials. In particular, a significant portion of the goods it manufactures and raw materials it uses
are transported by railroad or trucks, which are highly regulated. If any of its third-party transportation providers were to fail to deliver the goods the Company manufactures or distributes in a timely manner, the Company may be unable to sell
those products at full value, or at all. Similarly, if any of these providers were to fail to deliver raw materials to the Company in a timely manner, it may be unable to manufacture its products in response to customer demand. In addition, if any
of these third parties were to cease operations or cease doing business with the Company, it may be unable to replace them at reasonable cost. Any failure of a third-party transportation provider to deliver raw materials or finished products in a
timely manner could harm the Companys reputation, negatively impact its customer relationships and have a material adverse effect on its financial condition and operating results.

The Company could experience disruptions in operations and/or increased labor costs due to labor disputes or restructuring activities.

Employees at 18 of the Companys facilities, representing half of the Companys 9,400 employees, are represented by unions
through collective bargaining agreements generally on a facility-by-facility basis. Certain of these agreements will expire in 2014 and others will expire between 2015 and 2017. As of December 31, 2013, 3 collective bargaining agreements in
Canada, representing 42 employees, are up for renegotiation. All unionized employees in the U.S. and Europe were covered by a ratified agreement as of December 31, 2013. In the future, the Company may not be able to negotiate acceptable new
collective bargaining agreements, which could result in strikes or work stoppages or other labor disputes by affected workers. Renewal of collective bargaining agreements could also result in higher wages or benefits paid to union members. In
addition, labor organizing activities could occur at any of the Companys facilities. Therefore, the Company could experience a disruption of its operations or higher ongoing labor costs, which could have a material adverse effect on its
business and financial condition.

In connection with the Companys restructuring efforts, the Company has suspended
operations at, or closed or announced its intention to close, various facilities and may incur liability with respect to affected employees, which could have a material adverse effect on its business or financial condition. In addition, the Company
continues to evaluate potential adjustments to its production capacity, which may include additional closures of machines or entire mills, and the Company could recognize significant cash and/or non-cash charges relating to any such closures in the
future.

The Company relies heavily on a small number of significant customers, including one customer that represented approximately 10%
of the Companys sales in 2013. A significant change in customer relationships or in customer demand for our products could materially adversely affect the Companys business, financial condition or results of operations.

The Company heavily relies on a small number of significant customers. The Companys largest customer, Staples, represented
approximately 10% of the Companys sales in 2013. A significant reduction in sales to any of the Companys key customers, which could be due to factors outside its control, such as purchasing diversification or financial difficulties
experienced by these customers, could materially adversely affect the Companys business, financial condition or results of operations. Consolidation among our customers could also create significant cost margin pressure and lead to more
complexity across broader geographic boundaries for both us and our key retailers.

A material disruption at one or more of the
Companys manufacturing facilities could prevent it from meeting customer demand, reduce its sales and/or negatively impact its net income.

Any of the Companys manufacturing facilities, or any of its machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:



unscheduled maintenance outages;



prolonged power failures;



equipment failure;



chemical spill or release;



explosion of a boiler;



the effect of a drought or reduced rainfall on its water supply;



labor difficulties;



government regulations;



disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;

other operational problems, including those resulting from the risks described in this section.

Events such as those listed above have resulted in operating losses in the past. Future events may cause shutdowns, which may result in
additional downtime and/or cause additional damage to the Companys facilities. Any such downtime or facility damage could prevent the Company from meeting customer demand for its products and/or require it to make unplanned capital
expenditures. If one or more of these machines or facilities were to incur significant downtime, it may have a material adverse effect on the Companys financial results and financial position.

The Companys operations require substantial capital, and it may not have adequate capital resources
to provide for all of its capital requirements.

The Companys businesses are capital intensive and require that it
regularly incur capital expenditures in order to maintain its equipment, increase its operating efficiency and comply with environmental laws. In 2013, the Companys total capital expenditures were $242 million
(2012$236 million).

If the Companys available cash resources and cash generated from operations are not
sufficient to fund its operating needs and capital expenditures, the Company would have to obtain additional funds from borrowings or other available sources or reduce or delay its capital expenditures. The Company may not be able to obtain
additional funds on favorable terms, or at all. In addition, the Companys debt service obligations will reduce its available cash flows. If the Company cannot maintain or upgrade its equipment as it requires or allocate funds to ensure
environmental compliance, it could be required to curtail or cease some of its manufacturing operations, or it may become unable to manufacture products that compete effectively in one or more of its product lines.

The Company and its subsidiaries may incur substantially more debt. This could increase risks associated with its leverage.

The Company and its subsidiaries may incur substantial additional indebtedness in the future. Although the revolving credit facility
contains restrictions on the incurrence of additional indebtedness, including secured indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these
restrictions could be substantial. As of December 31, 2013, the Company had borrowings under the Credit Agreement amounting to $160 million and had outstanding letters of credit amounting to $1 million under its revolving credit facility,
resulting in $439 million of availability for future drawings under this credit facility. Also, the Company can use securitization of certain receivables to provide additional liquidity to fund its operations. At December 31, 2013 the
Company had no borrowings and $46 million of letters of credit outstanding under the securitization program (2012  nil and $38 million), resulting in $92 million of availability for future drawings under this program. Other new borrowings
could also be incurred by Domtar Corporation or its subsidiaries. Among other things, the Company could determine to incur additional debt in connection with a strategic acquisition. If the Company incurs additional debt, the risks associated with
its leverage would increase.

The Companys ability to generate the significant amount of cash needed to pay interest and principal on
the Companys unsecured long-term notes and service its other debt and financial obligations and its ability to refinance all or a portion of its indebtedness or obtain additional financing depends on many factors beyond the Companys
control.

For 2013, the Company had approximately $83 million in debt service, including $2 million of tender offer
premium. The Companys ability to make payments on and refinance its debt, including the Companys unsecured long-term notes and amounts borrowed under its revolving credit facility, if any, and other financial obligations and to fund its
operations will depend on its ability to generate substantial operating cash flow. The Companys cash flow generation will depend on its future performance, which will be subject to prevailing economic conditions and to financial, business and
other factors, many of which are beyond its control.

The Companys business may not generate sufficient cash flow from
operations and future borrowings may not be available to the Company under its revolving credit facility or otherwise in amounts sufficient to enable the Company to service its indebtedness, including the Companys unsecured long-term notes,
and borrowings, if any, under its revolving credit facility or to fund its other liquidity needs. If the Company cannot service its debt, the Company will have to take actions such as reducing or delaying capital investments, selling assets,
restructuring or refinancing its debt or seeking additional equity capital. Any of these remedies may not be effected on commercially reasonable terms, or at all, and may impede the implementation of its business strategy. Furthermore, the revolving
credit facility may restrict the Company from adopting any of these alternatives. Because of these and other factors that may be beyond its control, the Company may be unable to service its indebtedness.

The Company has manufacturing and converting operations in the United States, Canada, Sweden and China and sells in more than 50
countries. As a result, it is exposed to movements in foreign currency exchange rates in Canada, Europe and Asia. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency
movements. Therefore, the Companys earnings are affected by increases or decreases in the value of the Canadian dollar and of other European and Asian currencies relative to the U.S. dollar. The Companys European subsidiaries are exposed
to movements in foreign currency exchange rates on transactions denominated in a different currency than the Euro functional currency. The Companys risk management policy allows it to hedge a significant portion of its exposure to fluctuations
in foreign currency exchange rates for periods up to three years. The Company may use derivative instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates or to
designate them as hedging instruments in order to hedge the subsidiarys cash flow risk for purposes of the consolidated financial statements. There can be no assurance that the Company will be protected against substantial foreign currency
fluctuations. This factor could adversely affect the Company financial results.

The Company has liabilities with respect to its pension
plans and the actual cost of its pension plan obligations could exceed current provisions. As of December 31, 2013, the Companys defined benefit plans had a surplus of $96 million on certain plans and a deficit of
$102million on others.

The Companys future funding obligations for its defined benefit pension
plans depend upon changes to the level of benefits provided by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine minimum funding levels, actuarial data and experience, and
any changes in government laws and regulations. As of December 31, 2013, the Companys Canadian defined benefit pension plans held assets with a fair value of $1,412 million (CDN $1,502 million), including a fair value of
$203 million (CDN $216 million) of restructured asset backed notes (ABN) (formerly asset backed commercial paper).

Most of the ABN investments were subject to restructuring (under the court order governing the Montreal Accord that was completed in January 2009) while the remainder is in conduits restructured
outside the Montreal Accord or subject to litigation between the sponsor and the credit counterparty. At December 31, 2013, the Company determined that the fair value of these ABN investments was $203 million (CDN $216 million)
(2012$213 million (CDN $211 million). Possible changes that could have an adverse material effect on the future value of the ABN include: (1) changes in the value of the underlying assets and the related derivative
transactions, (2) developments related to the liquidity of the ABN market and (3) a severe and prolonged economic slowdown in North America and the bankruptcy of referenced corporate credits.

The Company does not expect any potential short-term liquidity issues to affect the pension funds since pension fund obligations are
primarily long-term in nature. Losses in pension fund investments, if any, would result in future increased contributions by the Company or its Canadian subsidiaries. Additional contributions to these pension funds would be required to be paid over
5 year or 10 year periods, depending upon the applicable provincial requirement for funding solvency deficits. Losses, if any, would also impact operating results over a longer period of time and immediately increase liabilities and reduce
equity.

The Company could incur substantial costs as a result of compliance with, violations of or liabilities under applicable
environmental laws and regulations. It could also incur costs as a result of asbestos-related personal injury litigation.

The Company is subject to a wide range of general and industry-specific laws and regulations in the United States and other countries
where we have operations, relating to the protection of the environment and natural resources, including those governing air emissions, greenhouse gases and climate change, wastewater discharges, harvesting, silvicultural activities, the storage,
management and disposal of hazardous substances and wastes, the

cleanup of contaminated sites, landfill operation and closure obligations, forestry operations and endangered species habitat, and health and safety matters. In particular, the pulp and paper
industry in the United States is subject to the United States Environmental Protection Agencys (EPA) Cluster Rules.

The Company has incurred, and expects that it will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations as a result of
remedial obligations. The Company incurred $69 million of operating expenses and $6 million of capital expenditures in connection with environmental compliance and remediation in 2013. As of December 31, 2013, the Company had a
provision of $67 million for environmental expenditures, including certain asset retirement obligations (such as for landfill capping and asbestos removal) ($83 million as of December 31, 2012).

The Company also could incur substantial costs, such as civil or criminal fines, sanctions and enforcement actions (including orders
limiting its operations or requiring corrective measures, installation of pollution control equipment or other remedial actions), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of,
or liabilities under, environmental laws and regulations. The Companys ongoing efforts to identify potential environmental concerns that may be associated with its past and present properties will lead to future environmental investigations.
Those efforts will likely result in the determination of additional environmental costs and liabilities which cannot be reasonably estimated at this time.

As the owner and operator of real estate, the Company may be liable under environmental laws for cleanup, closure and other damages resulting from the presence and release of hazardous substances,
including asbestos, on or from its properties or operations. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, the Companys liability may be imposed without regard to contribution or to whether it
knew of, or caused, the release of hazardous substances and may exceed forecasted amounts or the value of the property itself. The discovery of additional contamination or the imposition of additional cleanup obligations at the Companys or
third-party sites may result in significant additional costs. Any material liability the Company incurs could adversely impact its financial condition or preclude it from making capital expenditures that would otherwise benefit its business.

In addition, the Company may be subject to asbestos-related personal injury litigation arising out of exposure to asbestos on
or from its properties or operations, and may incur substantial costs as a result of any defense, settlement, or adverse judgment in such litigation. The Company may not have access to insurance proceeds to cover costs associated with
asbestos-related personal injury litigation.

Enactment of new environmental laws or regulations or changes in existing laws
or regulations, or interpretation thereof, might require significant expenditures. For example, changes in climate change regulation  See Part I, Item 3, Legal Proceedings, under the caption Climate change regulation, and
see Part II, Item 8, Note 22 Commitments and Contingencies under the caption Industrial Boiler Maximum Achievable Control Technology Standard (MACT).

The Company may be unable to generate funds or other sources of liquidity and capital to fund environmental liabilities or expenditures.

Failure to comply with applicable laws and regulations could have a material adverse affect on our business, financial results or
condition.

In addition to environmental laws, our business and operations are subject to a broad range of other laws and
regulations in the United States and Canada as well as other jurisdictions in which we operate, including antitrust and competition laws, occupational health and safety laws and employment laws. Many of these laws and regulations are complex and
subject to evolving and differing interpretation. If the Company is determined to have violated any such laws or regulations, whether inadvertently or willfully, it may be subject to civil and criminal penalties, including substantial fines, or
claims for damages by third parties which may have a material adverse effect on the Companys financial position, results of operations or cash flows.

At the end of January 2014, Spanish officials commenced a preliminary competition
investigation of several companies (including Indas, a subsidiary of the Company acquired on January 2, 2014), associations and federations active in the manufacturing, distribution and dispensation of severe adult incontinence products in Spain.
The officials have indicated that they will initiate formal proceedings if evidence of prohibited anti-competitive practices is found. The initiation of preliminary investigations or a subsequent initiation of formal proceedings do not prejudice the
final outcome of the case. The Company is cooperating with the preliminary investigation. The Company is unable to assess the ultimate outcome of the preliminary investigation. The seller of Indas made certain representations to the Company
pursuant to the purchase agreement regarding Indas compliance with competition laws, which are backed by bank guarantees and insurance coverage.

The Companys intellectual property rights are valuable, and any inability to protect them could reduce the value of its products and its brands.

The Company relies on patent, trademark and other intellectual property laws of the United States and other countries to protect its
intellectual property rights. However, the Company may be unable to prevent third parties from using its intellectual property without its authorization, which may reduce any competitive advantage it has developed. If the Company had to litigate to
protect these rights, any proceedings could be costly, and it may not prevail. The Company cannot guarantee that any United States or foreign patents, issued or pending, will provide it with any competitive advantage or will not be challenged by
third parties. Additionally, the Company has obtained and applied for United States and foreign trademark registrations, and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. The Company cannot
guarantee that any of its pending patent or trademark applications will be approved by the applicable governmental authorities and, even if the applications are approved, third parties may seek to oppose or otherwise challenge these registrations.
The failure to secure any pending patent or trademark applications may limit the Companys ability to protect the intellectual property rights that these applications were intended to cover.

Interruption or failure of the Companys information technology systems could have a material adverse effect on our business operations and
financial results.

The Companys information technology systems, some of which are dependent on services provided by
third parties, serve an important role in the efficient operation of its business. This role includes ordering and managing materials from suppliers, managing its inventory, converting materials to finished products, facilitating order entry and
fulfillment, processing transactions, summarizing and reporting its financial results, facilitating internal and external communications, administering human resources functions, and providing other processes necessary to manage its business. The
failure of these information technology systems to perform as anticipated could disrupt the Companys business and negatively impact its financial results. In addition, these information technology systems could be damaged or cease to function
properly due to any number of causes, such as catastrophic events, power outages, security breaches, computer viruses, or cyber-based attacks. While the Company has contingency plans in place to prevent or mitigate the impact of these events, if
they were to occur and the Companys disaster recovery plans do not effectively address the issues on a timely basis, the Company could suffer interruptions in its ability to manage its operations, which may adversely affect its business and
financial results.

If the Company is unable to successfully retain and develop executive leadership and other key personnel, it may be
unable to fully realize critical organizational strategies, goals and objectives.

The success of the Company is
substantially dependent on the efforts and abilities of its key personnel, including its executive management team, to develop and implement its business strategies and manage its operations. The failure to retain key personnel or to develop
successors with appropriate skills and experience for key positions in the Company could adversely affect the development and achievement of critical organizational strategies, goals and objectives. There can be no assurance that the Company will be
able to retain or develop the key personnel it needs and the failure to do so may adversely affect its financial condition and results of operations.

A description of our mills and related properties is included in Part I, Item I, Business, of
this Annual Report on Form 10-K.

Production facilities

We own substantially all of our production facilities with the exception of some production facilities where either certain portions are subject to leases with government agencies in connection with
industrial development bond financings, or are leased with a third party or are fee-in-lieu-of-tax agreements, and lease substantially all of our sales offices, regional replenishment centers and warehouse facilities. We believe our properties are
in good operating condition and are suitable and adequate for the operations for which they are used. We own substantially all of the equipment used in our facilities.

Forestlands

We manage over 16 million acres of forestland directly
and indirectly licensed or owned in Canada and the United States through efficient management and the application of certified sustainable forest management practices such that a continuous supply of wood is available for future needs.

In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent
infringements, environmental and product warranty claims, and labor issues. The Company periodically reviews the status of these proceedings and assesses the likelihood of any adverse judgments or outcomes of these legal proceedings, as well as
analyzes probable losses. Although the final outcome of any legal proceeding is subject to a number of variables and cannot be predicted with any degree of certainty, management currently believes that the ultimate outcome of current legal
proceedings will not have a material adverse effect on the Companys long-term results of operations, cash flow or financial position. However, an adverse outcome in one or more of the following significant legal proceedings could have a
material adverse effect on the Company results or cash flow in a given quarter or year.

Asbestos claims

Various asbestos-related personal injury claims have been filed in U.S. state and federal courts against Domtar Industries Inc. and
certain other affiliates of the Company in connection with alleged exposure by people to products or premises containing asbestos. While the Company believes that the ultimate disposition of these matters, both individually and on an aggregate
basis, will not have a material adverse effect on its financial condition, there can be no assurance that the Company will not incur substantial costs as a result of any such claim. These claims have not yielded a significant exposure in the past.
The Company has recorded a provision for these claims and any reasonable possible loss in excess of the provision is not considered to be material.

Environment

The Company is subject to environmental laws and regulations
enacted by federal, provincial, state and local authorities.

The Company is or may be a potentially responsible
party with respect to various hazardous waste sites that are being addressed pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (Superfund) or similar state laws. The EPA and/or various
state agencies have notified the Company that it may be a potentially responsible party with respect to other hazardous waste sites as to which no proceedings have been instituted against the Company. Domtar continues to take remedial action under
its Care and Control Program, as such sites mostly relate to its former wood preserving operating sites, and a number of operating sites due to possible soil, sediment or groundwater contamination. The investigation and remediation process is
lengthy and subject to the uncertainties of changes in legal requirements, technological developments and, if and when applicable, the allocation of liability among potentially responsible parties.

An action was commenced by Seaspan International Ltd. (Seaspan) in the Supreme Court of British Columbia, on March 31,
1999 against the Company and others with respect to alleged contamination of Seaspans site bordering Burrard Inlet in North Vancouver, British Columbia, including contamination of sediments in Burrard Inlet, due to the presence of creosote and
heavy metals. Beyond the filing of preliminary pleadings, no steps have been taken by the parties in this action. On February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan and the Company (responsible
persons) in order to define and implement an action plan to address soil, sediment and groundwater issues. This Order was appealed to the Environmental Appeal Board (Board) on March 17, 2010 but there is no suspension in the
execution of this Order unless the Board orders otherwise. The relevant government authorities selected a remediation approach on July 15, 2011 and on January 8, 2013 the same authorities decided that each responsible persons
implementation plan is satisfactory and that the responsible persons are to decide which plan is to be used. Most of the remaining appeals that were to be heard before the Board were abandoned by the parties during the course of the Board
proceedings which were held in the fall of 2013. Seaspan and Domtar have selected a remedial plan and are in the process of applying to the Vancouver Fraser Port Authority for permitting approval. The Company has recorded an environmental reserve to
address its estimated exposure and the reasonably possible loss in excess of the reserve is not considered to be material for this matter.

At December 31, 2013, the Company had a provision of $67 million ($83 million
at December 31, 2012) for environmental matters and other asset retirement obligations. Certain of these amounts have been discounted due to more certainty of the timing of expenditures. Additional costs, not known or identifiable, could be
incurred for remediation efforts. Based on policies and procedures in place to monitor environmental exposure, management believes that such additional remediation costs would not have a material adverse effect on the Companys financial
position, result of operations or cash flows.

Climate change regulation

The Kyoto Protocol, calls for reductions of certain emissions that may contribute to increases in atmospheric greenhouse gas
(GHG) concentrations, various international, national and local laws have been proposed or implemented focusing on reducing GHG emissions. These actual or proposed laws do or may apply in the countries where the Company currently has, or
may have in the future, manufacturing facilities or investments.

In the United States, Congress has considered legislation to
reduce emissions of GHGs. Although the legislation has not passed, it appears that the federal government will continue to consider methods to reduce GHG emissions from public utilities and certain other emitters.The U.S. Environmental Protection
Agency (EPA) has adopted and implemented GHG permitting requirements for certain new source and modifications of existing industrial facilities and has recently proposed GHG performance standard for newly constructed electric utilities
under the agencys existing Clean Air Act authority. Furthermore, several states are regulating GHG emissions from public utilities and certain other significant emitters, primarily through regional GHG cap-and-trade programs. The U.S. Supreme
Court agreed, on October 15, 2013, to review whether or not the EPA permissibly determined that its regulation under the Clean Air Act of greenhouse gas emissions from mobile sources also allows the agency to establish permitting requirements
for stationary sources that emit greenhouse gases. Passage of GHG legislation by Congress or individual states, or the adoption of regulations by the EPA or analogous state agencies, that restrict emissions of GHGs in areas in which the Company
conducts business could have a variety of impacts upon the Company, including requiring it to implement GHG reduction programs or to pay taxes or other fees with respect to its GHG emissions. This, in turn, will increase the Companys operating
costs and capital spending. The Company does not expect to be disproportionately affected by these measures compared with other pulp and paper producers in the United States.

The Government of Canada has committed to reducing greenhouse gases by 17 percent from 2005 levels by 2020. A sector by sector approach is being used to set performance standards to reduce greenhouse
gases. On September 5, 2012 final regulations were published for the coal-fired electrical generators which are scheduled to become effective July 1, 2015. The industry sector, which includes pulp and paper, is the next sector to undergo
this review. The Company does not expect the performance standards to be disproportionately affected by these future measures compared with other pulp and paper producers in Canada.

The province of Quebec initiated a GHG cap-and-trade system on January 1, 2012. Reduction targets for Quebec have been
promulgated and are effective January 1, 2013. The Company does not expect the cost of compliance will have a material impact on the Companys financial position, results of operations or cash flows. British Columbia imposed a carbon tax
in 2008, which applies to the purchase of fossil fuels within the province. There are currently no other federal or provincial statutory or regulatory obligations that affect the emission of GHGs for the Companys pulp and paper operations
elsewhere in Canada. The Province of Ontario is reviewing a potential regulatory program for GHG emission reductions that may include a cap-and-trade component.

While it is likely that there will be increased regulation relating to GHG emissions in the future, at this time it is not possible to estimate either a timetable for the promulgation or implementation of
any new regulations or the Companys cost of compliance to said regulations. The impact could, however, be material.

Domtar Corporations common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol UFS. The following table sets forth the price ranges of our
common stock during 2013 and 2012.

New York StockExchange ($)

Toronto Stock Exchange(CDN$)

High

Low

Close

High

Low

Close

2013 Quarter

First

87.08

73.23

77.62

85.67

75.00

78.97

Second

78.77

65.05

66.50

79.67

67.75

69.95

Third

80.97

65.05

79.42

83.51

67.67

81.85

Fourth

96.30

79.43

94.34

103.21

82.00

100.22

Year

96.30

65.05

94.34

103.21

67.67

100.22

2012 Quarter

First

100.59

83.98

95.38

99.71

84.92

95.28

Second

99.27

75.64

76.71

98.34

78.00

78.00

Third

78.80

69.73

78.29

80.00

70.25

77.07

Fourth

84.66

73.08

83.52

84.00

73.21

82.90

Year

100.59

69.73

83.52

99.71

70.25

82.90

HOLDERS

At December 31, 2013, the number of shareholders of record (registered and non-registered) of Domtar Corporation common stock was approximately 7,085 and the number of shareholders of record
(registered and non-registered) of Domtar (Canada) Paper Inc. exchangeable shares was approximately 5,691.

DIVIDENDS AND STOCK REPURCHASE PROGRAM

On February 18, 2014, the Board of Directors approved a quarterly dividend of $0.55 per share to be paid to holders of the Companys common stock, as well as holders of exchangeable shares of
Domtar (Canada) Paper Inc. This dividend is to be paid on April 15, 2014 to shareholders of record on March 14, 2014.

During 2013, Domtar Corporation declared and paid four quarterly dividends. The first quarter dividend was $0.45 per share, relating to
2012, and the remainder was $0.55 per share relating to 2013, to holders of the Companys common stock, as well as holders of exchangeable shares of Domtar (Canada) Paper Inc., a subsidiary of Domtar Corporation. The total dividends of
approximately $15 million, $19 million, $18 million and $17 million were paid on April 15, 2013, July 15, 2013, October 15, 2013 and January 15, 2014, respectively.

During 2012, Domtar Corporation declared and paid four quarterly dividends. The first quarter dividend was $0.35 per share, relating to
2011, and the remainder was $0.45 per share relating to 2012, to holders of the Companys common stock, as well as holders of exchangeable shares of Domtar (Canada) Paper Inc., a subsidiary of Domtar Corporation. The total dividends of
approximately $13 million, $16 million, $16 million and $16 million were paid on April 16, 2012, July 16, 2012, October 15, 2012 and January 15, 2013, respectively.

The Board of Directors authorized a stock repurchase program (the Program) of up
to $1 billion of the Companys common stock. Under the Program, the Company is authorized to repurchase from time to time shares of its outstanding common stock on the open market or in privately negotiated transactions in the
United States. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Program may be suspended, modified or discontinued at any
time and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock, from time to time, in part to reduce the dilutive effects of its
stock options, awards, and to improve shareholders returns.

The Company makes open market purchases of its common
stock using general corporate funds. Additionally, it may enter into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements require
the Company to make up-front payments to the counterparty financial institutions which results in either (i) the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements,
or (ii) the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock.

During 2013, the Company repurchased 2,509,803 shares at an average price of $73.10 for a total cost of $183 million (2012 
2,000,925; $78.32 and $157 million, respectively).

All shares repurchased are recorded as Treasury stock on the
Consolidated Balance Sheets under the par value method at $0.01 per share.

Share repurchase activity under our share
repurchase program was as follows during the year ended December 31, 2013:

Period

(a) Total Number
ofShares Purchased

(b) Average Price Paidper Share

(c) Total Number ofShares Purchased asPart of PubliclyAnnounced
Plans orPrograms

This graph compares the return on a $100 investment in the Companys common stock on December 31, 2008 with
a $100 investment in an equally-weighted portfolio of a peer group(1), and a
$100 investment in the S&P 400 MidCap Index. This graph assumes that returns are in local currencies and assumes quarterly reinvestment of dividends. The measurement dates are the last trading day of the period as shown.

In May 2011, Domtar Corporation was added to the Standard and Poors MidCap 400 Index and since
then we are using this Index.

(1)

On May 18, 2007, the Human Resources Committee of the Board of Directors established performance measures as part of the Performance Conditioned Restricted Stock
Unit (PCRSUs) Agreement including the achievement of a total shareholder return compared to a peer group. The 2013 peer group includes: Clearwater Paper Corporation, RockTenn Company, Kapstone Paper & Packaging Corporation,
Schweitzer-Mauduit International Inc., Sonoco Products Company, Glatfelter Corporation, International Paper Co., MeadWestvaco Corporation, Packaging Corp. of America, Sappi Ltd., UPM-Kymmene Corp., and Wausau Paper Corporation.

This graph assumes that returns are in local currencies and assumes quarterly reinvestment of dividends and
special dividends.

The following sets forth selected historical financial data of the Company for the periods and as of the dates indicated. The selected
financial data as of and for the fiscal years then ended have been derived from the audited financial statements of Domtar Corporation.

The following table should be read in conjunction with Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 8, Financial
Statements and Supplementary Data of this Annual Report on Form 10-K.

Year ended

FIVE YEAR FINANCIAL SUMMARY

December 31,2013

December 31,2012

December 31,2011

December 31,2010

December 31,2009

(In millions of dollars, except per share figures)

Statement of Income Data:

Sales

$

5,391

$

5,482

$

5,612

$

5,850

$

5,465

Closure and restructuring costs and, impairment and write-down of property, plant and equipment and intangible
assets

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in
conjunction with Domtar Corporations audited consolidated financial statements and notes thereto included in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K. Throughout this
MD&A, unless otherwise specified, Domtar Corporation, the Company, Domtar, we, us and our refer to Domtar Corporation and its subsidiaries, as well as its investments.
Domtar Corporations common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles
generally accepted in the United States (GAAP).

In accordance with industry practice, in this report, the term
ton or the symbol ST refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term metric ton or the symbol ADMT refers to an air dry metric ton. In this report,
unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term dollars and the symbol $ refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or
decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volume are based on the twelve month periods ended December 31, 2013, 2012 and 2011. The twelve month periods are also referred to as
2013, 2012 and 2011.

EXECUTIVE SUMMARY

On July 31, 2013, we sold our Ariva business in the United States (Ariva U.S.). The results of our former Distribution
segment have been reclassified under the Pulp and Paper segment.

In 2013, we reported operating income of $161 million,
a decrease of $206 million compared to $367 million in 2012. Our results were impacted by the repayment of $26 million of Alternative Fuel Tax Credit (AFTC) in the first quarter of 2013 (in our Pulp and Paper segment), and
the settlement of a litigation with George Weston Limited for $49 million in the second quarter of 2013 (in our Corporate segment). In addition, our operating results decreased when compared to 2012 mostly due to a decrease in operating income
in our Pulp and Paper segment.

In our Pulp and Paper segment, our operating income decreased by $159 million when compared to
2012. This decrease in operating income is mostly due to lower selling prices for manufactured paper ($73 million, reflecting a selling price decrease of approximately 2% when compared to 2012), the conversion of AFTC in 2013 ($26 million) as
mentioned above, higher raw materials costs including fiber ($28 million), energy ($17 million) and chemicals ($3 million) as well as the negative impact of lower production in pulp and paper ($45 million) and a decrease in
manufactured paper and pulp shipments ($25 million). In addition, we had an increase in costs related to maintenance ($15 million), as well as an increase in freight charges ($13 million) and salaries and wages ($11 million). These
cost increases were partially offset by higher selling prices for pulp ($43 million, reflecting a selling price increase of approximately 5% when compared to 2012), lower restructuring costs ($19 million) as well as favorable exchange
rates, net of our hedging program ($29 million).

In our Personal Care segment, operating income decreased by
$2 million when compared to 2012. This decrease in operating income is mostly due to an increase in selling, general and administrative expenses and an increase in raw material costs. The decrease in operating income was mostly offset by the
inclusion of a full year of Attends Healthcare Limited (Attends Europe) and EAM Corporation (EAM) following their acquisitions in the first and second quarter of 2012, respectively, as well as the acquisition of Associated
Hygienic Products LLC (AHP) on July 1, 2013.

These and other factors that affected the year-over-year
comparison of financial results are discussed in the year-over-year and segment analysis.

In 2014, we expect our paper shipments to be in-line with 2013 while we expect the market demand for uncoated free sheet to decline with long-term secular trends. Our paper prices are expected to benefit
from the implementation of recently announced prices increases. We expect softwood pulp markets to maintain positive momentum but new scheduled industry hardwood pulp capacity makes the latter part of the year more uncertain. Personal care will
continue to see earnings growth with the recent acquisition of Laboratorios Indas, S.A.U. (Indas) and with the addition of the new production lines towards the end of the year.

ACQUISITION OF BUSINESSES

Associated Hygienic Products LLC

On July 1, 2013, we completed the acquisition of 100% of the outstanding shares of AHP. AHP manufactures and markets infant diapers
in the United States. AHP has approximately 600 employees and operates two manufacturing facilities, a 376,500 square foot manufacturing facility in Delaware, Ohio and a 312,500 square foot manufacturing facility in Waco, Texas. The
results of AHPs operations are included in the Personal Care reportable segment starting July 1, 2013. The purchase price was $276 million in cash, including working capital, net of cash acquired of $2 million. For details,
refer to Part II, Item 8, Financial Statements and Supplementary Data, under Note 3 Acquisition of Businesses of this Annual Report on Form 10-K.

Xerox

On June 1, 2013, we completed the acquisition of Xeroxs
paper and print media products assets in the United States and Canada. The transaction includes a broad range of coated and uncoated papers and specialty print media including business forms, carbonless as well as wide-format paper formerly
distributed by Xerox. The results of this business are presented in the Pulp and Paper reportable segment. The purchase price was $7 million in cash plus inventory on a dollar for dollar basis.

For details, refer to Part II, Item 8, Financial Statements and Supplementary Data, under Note 3 Acquisition of
Businesses of this Annual Report on Form 10-K.

Laboratorios Indas, S.A.U.

On January 2, 2014, we completed the acquisition of Laboratorios Indas, S.A.U. a branded incontinence products manufacturer and marketer
in Spain. Indas has approximately 440 employees and operates two manufacturing facilities in Spain. The results of Indas operations are included in the Personal Care reportable segment as of January 2, 2014. The purchase price is
estimated to be $546 million (399 million), in cash, including working capital, net of cash acquired of $46 million (34 million). We have not completed the valuation of assets acquired and liabilities assumed; however, we anticipate
providing a preliminary purchase price allocation in our 2014 first quarter Form 10-Q filing.

CLOSURE AND RESTRUCTURING ACTIVITIES AND
IMPAIRMENT AND WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

Closure and Restructuring Activities

The following tables provide the components of closure and restructuring costs by segment:

Loss on curtailment of pension benefits and pension withdrawal liability

16



16

Other

2

1

3

Closure and restructuring costs

29

1

30

Year endedDecember 31, 2011

Pulp and Paper

Total

$

$

Severance and termination costs

5

5

Inventory write-down

2

2

Loss on curtailment of pension benefits and pension withdrawal liability

41

41

Other

4

4

Closure and restructuring costs

52

52

Multiemployer Pension Plan  2011, 2012 and 2013

In 2011, we decided to withdraw from one of our multiemployer pension plans and recorded a withdrawal liability and a charge to earnings
of $32 million. In 2012, as a result of a revision in the estimated withdrawal liability, we recorded a further charge to earnings of $14 million. Also in 2012, we withdrew from a second multiemployer pension plan and recorded a withdrawal liability
and a charge to earnings of $1 million. In the first quarter of 2013, as a result of another revision in the estimated withdrawal liability, we recorded a further charge to earnings of $1 million. During the second and third quarter of 2013, we
withdrew from our remaining U.S. multiemployer pension plans and recorded a withdrawal liability and a charge to earnings of $14 million, of which $3 million is recorded in Closure and restructuring cost and $11 million related to the
sale of our Ariva U.S. business included in Other operating loss (income) on the Consolidated Statement of Earnings and Comprehensive Income. At December 31, 2013, the total provision for the withdrawal liabilities is $63 million. While
this is our best estimate of the ultimate cost of the withdrawal from these plans at December 31, 2013, additional withdrawal liabilities may be incurred based on the final fund assessment and in the event of a mass withdrawal, as defined by
statute, occurring anytime within the next three years.

During the second quarter of 2013, we also incurred aggregate pension
settlement costs in the amount of $13 million related to the previously closed Big River sawmill and Dryden paper mill for $6 million and $7 million, respectively.

In the fourth quarter of 2011, we incurred a $9 million cost from an estimated pension curtailment associated with the conversion of
certain of our U.S. defined benefit pension plans to defined contribution pension plans recorded as a component of closure and restructuring costs.

On December 13, 2012, we announced the permanent shut down of one pulp line at our Kamloops, British Columbia mill. This decision resulted in a permanent curtailment of our annual pulp production by
approximately 120,000 ADMT of sawdust softwood pulp and affected approximately 125 employees. In 2012,

we recorded severance and termination costs ($5 million) and a write-down of inventory ($4 million). The pulp line ceased production in March 2013. As a result, during the first quarter of 2013
we reversed $1 million of severance and termination costs. During the second quarter of 2013, we reversed an additional $1 million of severance and termination costs, reversed $1 million of inventory obsolescence, and incurred
$2 million of other costs.

Operations at the pulp mill were indefinitely idled in November 2005 due to unfavorable economic conditions and the
sawmill was indefinitely idled since 2006 and then permanently closed in 2008. At the time, the pulp mill and sawmill employed approximately 425 and 140 employees, respectively. The Lebel-sur-Quévillon pulp mill had an annual production
capacity of 300,000 metric tons. During 2011, we reversed $2 million of severance and termination costs related to our Lebel-sur-Quévillon pulp mill and sawmill and following the signing of a definitive agreement for the sale of our
Lebel-sur-Quévillon assets. During the second quarter of 2012, we concluded the sale of our pulp and sawmill assets to Fortress Paper Ltd., and our land related to those assets to a subsidiary of the Government of Quebec for net proceeds of
$1.

Langhorne forms plant  2011 (Pulp and Paper segment)

On February 1, 2011, we announced the closure of our forms plant in Langhorne, Pennsylvania, and recorded $4 million in
severance and termination costs.

Ashdown pulp and paper mill  2011 (Pulp and Paper segment)

On March 29, 2011, we announced that we would permanently shut down one of four paper machines at our Ashdown, Arkansas pulp and
paper mill. This measure reduced our annual uncoated freesheet paper production capacity by approximately 125,000 short tons. The mills workforce was reduced by approximately 110 employees. In 2011, we recorded a $1 million
write-down of inventory and $1 million of severance and termination costs. Operations ceased on August 1, 2011.

Plymouth pulp and
paper mill  2010 and 2011 (Pulp and Paper segment)

On February 5, 2009, we announced a permanent shut down of a
paper machine at our Plymouth, North Carolina pulp and paper mill effective at the end of February 2009. We further announced in 2009 that our Plymouth mill would be converted to a 100% fluff pulp mill. This measure resulted in the permanent
curtailment of 293,000 tons of paper production capacity and the shutdown affected approximately 185 employees. During 2011, we reversed $2 million of severance and termination costs.

Other costs

During
2013, other costs related to previous and ongoing closures include $2 million of severance and termination costs. During 2012, other costs related to previous and ongoing closures included $1 million in severance and termination costs, a
$1 million write-down of inventory, $1 million in pension and $3 million in other costs. During 2011, other costs related to previous closures included $4 million in severance and termination costs, a $1 million write-down
of inventory and $4 million in other costs.

We continue to evaluate potential adjustments to our production capacity,
which may include additional closures of machines or entire mills, and we could recognize significant cash and/or non-cash charges relating to any such closures in future periods. For more information relating to all our closure and restructuring
activities, refer to Item 8, Financial Statements and Supplementary Data of the Annual Report of this Form 10-K, under Note 16 Closure and Restructuring Costs and Liability.

During the fourth quarter of 2013, we recorded a $2 million write-down of property, plant and equipment, due to the replacement of certain equipment at our Attends Europe location, in Impairment and
write-down of property, plant and equipment and intangible assets (a component of Impairment and write-down of property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and Comprehensive Income).

Pulp and paper converting site  2013 (Pulp and Paper segment)

During the fourth quarter of 2013, we recorded a $5 million write-down of property, plant and equipment in one of our converting sites in the Pulp and Paper segment, in Impairment and write-down of
property, plant and equipment and intangible assets (a component of Impairment and write-down of property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and Comprehensive Income).

Ariva U.S.  2013 (Pulp and Paper segment)

On July 31, 2013, we completed the sale of Ariva U.S. which had approximately 400 employees in the United States. As a result of this agreement, during the second quarter of 2013, we recorded a
$5 million impairment of property, plant and equipment at our former Ariva U.S. location, in Impairment and write-down of property, plant and equipment and intangible assets (a component of Impairment and write-down of property, plant and
equipment and intangible assets on the Consolidated Statement of Earnings and Comprehensive Income). For details, refer to Part II, Item 8, Financial Statements and Supplementary Data, under Note 26 Sale of Ariva U.S. of this
Annual Report on Form 10-K.

As a result of the announced shut down as described above, we recognized, under Impairment and write-down of property, plant and
equipment, $7 million of accelerated depreciation under Impairment and write-down of property, plant and equipment in 2012. In 2013, we recognized $10 million of accelerated depreciation under Impairment and write-down of property, plant
and equipment. Given the decision to close the pulp line, we assessed in the fourth quarter of 2012 our ability to recover the carrying value of the Kamloops mills long-lived assets from the undiscounted estimated future cash flows. We
concluded that the undiscounted estimated future cash flows associated with the long-lived assets exceeded their carrying value and, as such, no additional impairment charge was required.

During the first quarter of 2012, we recorded a $2 million write-down of property, plant and equipment at our Mira Loma location in
California, in Impairment and write-down of property, plant and equipment and intangible assets (a component of Impairment and write-down of property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and
Comprehensive Income).

As a result of the permanent closure described above, we recorded a $12 million write-down for the remaining fixed assets net book
value, a component of Impairment and write-down of property, plant and equipment and intangible assets (a component of Impairment and write-down of property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and
Comprehensive Income).

As a result of the permanent shut down described above, we recorded $73 million of accelerated depreciation, a component of
Impairment and write-down of property, plant and equipment and intangible assets. Given the substantial decline in production capacity at our Ashdown mill, we conducted a quantitative impairment test in the fourth quarter of 2011 and concluded that
the recognition of an impairment loss for our Ashdown mills remaining long-lived assets was not required.

Impairment of Intangible
Assets

During 2012, deterioration in sales and operating results of Ariva U.S., a subsidiary included in our Pulp and
Paper segment, had led us to test the customer relationships of this asset group for recoverability. As of December 31, 2012, we recognized an impairment charge of $5 million included in Impairment and write-down of property, plant and
equipment and intangible assets related to customer relationships in the Pulp and Paper segment, based on the revised long-term forecast in the fourth quarter of 2012.

Changes in the assumptions and estimates may affect our forecasts and may lead to an outcome where impairment charges would be required. In addition, actual results may vary from our forecasts, and such
variations may be material and unfavorable, thereby triggering the need for future impairment tests where our conclusions may differ in reflection of prevailing market conditions.

DIVIDEND AND STOCK REPURCHASE PROGRAM

In 2013, we repurchased
2,509,803 shares of our common stock at an average price of $73.10 for a total cost of $183 million and paid quarterly cash dividends in an aggregate amount of $67 million.

RECENT DEVELOPMENT

Acquisition of Indas

On January 2, 2014, we completed the acquisition
of Indas, a branded incontinence products manufacturer and marketer in Spain. Indas has approximately 440 employees and operates two manufacturing facilities in Spain. The results of Indas operations are included in the Personal Care
reportable segment as of January 2, 2014. The purchase price is estimated to be $546 million (399 million), in cash, including working capital, net of cash acquired of $46 million (34 million). We have not completed the
valuation of assets acquired and liabilities assumed; however, we anticipate providing a preliminary purchase price allocation in our 2014 first quarter Form 10-Q filing.

OUR BUSINESS

A description of our business is
included in Part I, Item 1, under the section Business of this Annual Report on Form 10-K. On July 31, 2013, we sold our Ariva U.S. business and the results of our former Distribution segment have been reclassified
under the Pulp and Paper segment. We now operate in two reportable segments: Pulp and Paper and Personal Care. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing
strategies.

Sales for 2013 amounted to $5,391 million, a decrease of $91 million, or approximately 2%, from sales of $5,482 million in
2012. This decrease in sales is mainly attributable to the sale of Ariva U.S. in the third quarter of 2013 ($158 million), a decrease in our average selling price for manufactured paper ($73 million, reflecting a selling price decrease of
approximately 2% when compared to the average selling price of 2012), a decrease in our pulp volume ($52 million) and a decrease in our manufactured paper volume ($27 million). These decreases were partially offset by the increase in sales
due to the acquisition of AHP at the beginning of the third quarter of 2013 as well as inclusion of a full year of sales from Attends Europe and EAM. In addition, our average selling price for pulp increased ($43 million, reflecting a selling
price increase of approximately 5% when compared to the average selling price of 2012).

Cost of Sales, excluding Depreciation and
Amortization

Cost of sales, excluding depreciation and amortization, amounted to $4,361 million in 2013, an increase
of $40 million, or approximately 1%, compared to cost of sales, excluding depreciation and amortization, of $4,321 million in 2012. This increase is mainly attributable to the acquisition of AHP at the beginning of the third quarter of
2013, which resulted in an increase in cost of sales as well as the inclusion of a full year of cost of sales for Attends Europe and EAM. We had higher costs of raw materials, including fiber ($31 million), energy ($17 million) and chemicals ($3
million), higher maintenance costs ($15 million), higher freight costs ($12 million) and higher fixed costs ($13 million mostly due to an increase in salaries and wages). These increases were partially offset by a decrease in cost of
sales for Ariva U.S., following its sale in the third quarter of 2013 ($144 million), lower shipments for pulp and paper ($47 million and $18 million, respectively) as well as favorable exchange rates, net of our hedging program
($29 million).

Depreciation and Amortization

Depreciation and amortization amounted to $376 million in 2013, a decrease of $9 million, or 2%, compared to depreciation and amortization of $385 million in 2012. In our Pulp and Paper
segment, depreciation and amortization decreased by $20 million, primarily due to reduced assets following the permanent shut down of a pulp line at our Kamloops pulp mill in the first quarter of 2013 and several assets reaching the end of
their useful lives. In our Personal Care segment, depreciation and amortization expenses increased by $11 million, mostly due to the acquisition of AHP at the beginning of the third quarter of 2013.

Selling, General and Administrative Expenses

SG&A expenses amounted to $381 million in 2013, an increase of $23 million, or 6%, compared to SG&A expenses of $358 million in 2012. This increase in SG&A is primarily due to a
gain of $12 million related to the curtailment of a post-retirement benefit plan in 2012, an increase in costs incurred for the creation of our new divisional head office in Raleigh, North Carolina for our Personal Care segment ($7 million) as
well as for costs related to information technologies ($6 million). In addition, SG&A expenses also increased due to the acquisition of AHP at the beginning of the third quarter of 2013. These increases were partially offset by the sale of
Ariva U.S. in the third quarter of 2013, lower mark-to-market adjustments on stock-based compensation ($7 million) and lower merger and acquisition expenses ($3 million) when compared to 2012.

Other Operating Loss, Net

Other operating loss, net amounted to $72 million in 2013 mostly due to the payment for litigation settlement with George Weston
Limited ($49 million), the conversion of AFTC into Cellulosic Biofuel Producer

Credit (CBPC) ($26 million) and the loss on sale of Ariva U.S. ($20 million) partially offset by a gain on sale of Port Edwards assets ($10 million), a gain on disposal
of Cornwall land ($6 million), favorable exchange on working capital items ($5 million) and a net gain related to derivative foreign exchange contract ($5 million).

In 2012, the other operating loss of $7 million was mostly due to loss on sale of assets ($3 million), unfavorable foreign exchange on working capital items ($3 million) and environmental provision
($2 million).

Operating Income

Operating income in 2013 amounted to $161 million, a decrease of $206 million compared to operating income of $367 million in 2012, due mostly to the factors mentioned above. In addition,
we recognized an impairment and write-down of property, plant and equipment charge as a result of an accelerated depreciation charge of $10 million from the closure of a pulp line at our Kamloops pulp mill in the first quarter of 2013, an
impairment and write-down of property, plant and equipment charge of $5 million related to property, plant and equipment at our former Ariva U.S. location, an impairment and write-down of property, plant and equipment charge of $5 million
related to property, plant and equipment at a pulp and paper converting site and a write-down of property, plant and equipment of $2 million due to the replacement of certain equipment related to Attends Europe. In 2012, we recorded
$7 million of impairment on property, plant and equipment due to the permanent shut down of the pulp line at our Kamloops mill, $5 million of impairment charges related to customer relationships at our former Ariva U.S. location and
$2 million write-down of property, plant and equipment at our Mira Loma location. Restructuring charges of $18 million were recorded in 2013 compared to $30 million in 2012. Additional information about closure and restructuring
activities, impairment and write-down charges is included under the section Closure and Restructuring Activities and Impairment and Write-Down of Property, Plant and Equipment and Intangible Assets above.

Interest Expense, net

We incurred $89 million of net interest expense in 2013, a decrease of $42 million compared to net interest expense of
$131 million in the 2012. This decrease in net interest expense is primarily due to the premium paid on the repurchase in 2012 of our 10.75% Notes due 2017, 9.5% Notes due 2016, 7.125% Notes due 2015 and 5.375% Notes due 2013, on which we
incurred $47 million of tender premiums and $3 million of additional charges, whereas in 2013, we recorded a charge of $2 million due to premiums paid on the repayment of our 5.375% Notes due 2013 and $1 million of additional
charges. As a result of the repurchase in 2012, interest expense on those Notes decreased ($5 million). These decreases were partially offset by the increase in interest expense as a result of the issuance of the $300 million of 4.4% Notes
due 2022, the issuance of $250 million of 6.25% Notes due 2042, and the issuance of the $250 million of 6.75% Notes due 2044 in the first quarter and third quarter of 2012, and in the fourth quarter of 2013, respectively.

Income Taxes

For 2013,
our income tax benefit amounted to $20 million compared to a tax expense of $58 million in 2012, which approximated an effective tax rate of -28% and 25% for 2013 and 2012, respectively.

During 2013, the Company recorded $54 million of various tax credits pertaining to current and prior years. These credits included
the conversion of $26 million of AFTC into $55 million of CBPC resulting in an after-tax benefit of $33 million for the new credit, as well as research and experimentation credits and other federal and state credits. Also, the Companys
effective tax rate is being reduced in 2013 by the impact of the U.S. manufacturing deduction and enacted law changes in certain states and provinces. The effective tax rate is being increased by the impact of certain non-deductible payments, mainly
the Weston litigation settlement and the AFTC repayment, and an increase in the valuation allowance on certain losses. Additionally, the effective tax rate is being impacted by an $8 million reduction in unrecognized tax benefits pertaining to
the AFTC which was converted to CBPC, partially offset by $5 million of accrued interest on uncertain tax positions.

A number of items impacted the 2012 effective tax rate. We recognized a tax benefit of $10
million for the U.S. manufacturing deduction and recorded an $8 million tax benefit related to federal, state, and provincial credits and special deductions. The effective tax rate for 2012 was also impacted by an increase in our unrecognized
tax benefits of $6 million, mainly accrued interest, and a $3 million benefit related to enacted tax law changes, mainly a tax rate reduction in Sweden, which was partially offset by U.S. tax law changes in several states.

Valuation Allowances

In 2013, we recorded a valuation allowance of $5 million, mostly related to certain loss carryforwards, which impacted the effective tax rate for 2013. In 2012, we recorded a valuation allowance of $10
million related to certain foreign loss carryforwards, of this amount $9 million has been accounted for as part of a business combination and $1 million which impacted the overall consolidated effective tax rate for 2012.

Net earnings amounted to $91 million ($2.72 per
common share on a diluted basis) in 2013, a decrease of $81 million compared to net earnings of $172 million ($4.76 per common share on a diluted basis) in 2012, mainly due to the factors mentioned above.

FOURTH QUARTER OVERVIEW

For the fourth
quarter of 2013, we reported operating income of $93 million, an increase of $50 million compared to operating income of $43 million in the fourth quarter of 2012. Our operating results for the fourth quarter of 2013 improved when
compared to the fourth quarter of 2012, primarily due to our Pulp and Paper segment ($43 million). In our Pulp and Paper segment, we experienced an increase in average selling prices for pulp quarter over quarter ($23 million), the
positive impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($13 million) and lower maintenance costs ($12 million). In addition, we had no restructuring charges in the fourth quarter of
2013 compared to $27 million in the fourth quarter of 2012. These increases were partially offset by lower selling prices for manufactured paper in the fourth quarter of 2013 compared to the fourth quarter of 2012 ($10 million), higher
costs for fiber and energy ($12 million and $3 million, respectively) and the negative impact of lower production volume, in part due to higher maintenance downtime in our paper production ($8 million). Operating income in our Personal
Care segment decreased by $4 million, mainly due to an increase in raw materials costs ($3 million), manufacturing spend ($2 million mostly due to an increase in labor costs) and selling, general and administrative charges ($3 million
mainly due to an increase in salaries and wages). These decreases in operating income in the Personal Care segment was partially offset by the inclusion of AHP, following its acquisition in the third quarter of 2013. In addition, we experienced the
favorable impacts of a reversal of an environmental provision ($5 million), a net gain on a derivative foreign exchange contract ($5 million) and the impact of favorable foreign exchange on working capital items ($4 million).

Our effective tax rate in the fourth quarter of 2013 of 8% was primarily impacted by an additional $9 million of research credits for
prior years resulting from a completed research and experimentation study in the U.S. and audit resolutions in Canada and recognition of $2 million of previously unrecognized tax benefits related to uncertain tax positions, as well as by additional
benefits related to the finalization of certain estimates in connection with the filing of certain our 2012 tax returns.

Sales for 2012 amounted to $5,482 million, a decrease of $130 million, or 2%, from sales of $5,612 million in 2011. This
decrease in sales is mainly attributable to a decrease in our average selling price for pulp ($184 million, reflecting a selling price decrease of approximately 16% when compared to the average selling price of 2011) and manufactured paper
($26 million, reflecting a selling price decrease of less than 1% when compared to the average selling price of 2011). In addition, volume for our manufactured paper sales decreased ($206 million, a decrease of approximately 6% when
compared to 2011) and we had lower deliveries in our former Distribution segment resulting from difficult market conditions and the sale of a business unit at the end of the first quarter of 2011 ($96 million). These decreases were partially offset
by the increase in sales due to the inclusion of a full year of sales from Attends US as well as the acquisition of Attends Europe and EAM in the first and second quarter of 2012. We also had higher pulp shipments ($52 million, an increase of
approximately 4% when compared to 2011).

Cost of Sales, excluding Depreciation and Amortization

Cost of sales, excluding depreciation and amortization, amounted to $4,321 million in 2012, an increase of $150 million, or 4%,
compared to cost of sales, excluding depreciation and amortization, of $4,171 million in 2011. This increase is mainly attributable to the inclusion of a full year of cost of sales for Attends US, and the acquisition of Attends Europe and EAM
in the first and second quarter of 2012, respectively, which resulted in an increase in cost of sales. In addition, we had higher volume for pulp ($39 million), higher costs for chemicals and fiber ($30 million and $29 million,
respectively), and higher fixed costs ($21 million due mostly to an increase in salaries and wages). These were partially offset by lower shipments for manufactured paper ($107 million), lower energy costs ($18 million), and lower
purchased pulp costs ($10 million).

Depreciation and Amortization

Depreciation and amortization amounted to $385 million in 2012, an increase of $9 million, or 2%, compared to depreciation and
amortization of $376 million in 2011. This increase is primarily due to the inclusion of depreciation and amortization expenses for a full year for Attends US and the acquisition of Attends Europe and EAM in the first and second quarter of
2012, respectively ($16 million). Depreciation and amortization charges decreased in the Pulp and Paper segment by $7 million primarily due to the permanent shut down of one of our paper machines at our Ashdown mill as well as certain
assets reaching their useful lives.

Selling, General and Administrative Expenses

SG&A expenses amounted to $358 million in 2012, an increase of $18 million, or 5%, compared to SG&A expenses of
$340 million in 2011. This increase in SG&A is primarily due to the inclusion of selling, general and administrative expenses for a full year for Attends US and the acquisition of Attends Europe and EAM in the first and second quarter of
2012, respectively, resulting in an increase of $31 million as well as increase in general administrative charges of $16 million due in part to an increase in merger and acquisition costs of $4 million. These increases were partially
offset by a decrease of $17 million related to our short-term incentive plan and a gain of $12 million related to the curtailment of a post-retirement benefit plan in 2012.

Other Operating (Income) Loss, net

In 2012, the other operating loss of $7
million was mostly due to loss on sale of assets ($3 million), unfavorable foreign exchange on working capital items ($3 million) and environmental provision ($2 million).

In 2011, the other operating income of $4 million was mostly due to gains of sale of
business and property, plant and equipment ($6 million), favorable exchange on working capital items ($2 million), partially offset by environmental provision ($3 million).

Operating Income

Operating income in 2012 amounted to $367 million, a
decrease of $225 million compared to operating income of $592 million in 2011, due mostly to the factors mentioned above. This decrease is partially offset by lower impairment and write-down of property, plant and equipment costs of
$71 million (a component of Impairment and write-down of property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and Comprehensive Income). In 2012, we recorded $7 million of impairment on property,
plant and equipment due to the permanent shut down of the pulp line at our Kamloops mill, $5 million of impairment charges related to customer relationships for our former Ariva U.S. business and $2 million write-down of property, plant
and equipment at our Mira Loma plant, compared to the $73 million accelerated depreciation charge related to the closure of a paper machine at our Ashdown mill (in the third quarter of 2011) and the $12 million impairment charge on assets
at our Lebel-sur-Quévillion, a former mill, in 2011. In addition, we had lower closure and restructuring charges of $22 million when compared to 2011, primarily due to the closure of a paper machine at our Ashdown mill in 2011 as well as
the withdrawal from two of our U.S. multiemployer plans where we incurred a withdrawal charge of $15 million in 2012 compared to a charge of $32 million in 2011. Additional information about impairment and write-down charges is included
under the section Impairment of Property, Plant and Equipment, under the caption Critical Accounting Policies of this MD&A.

Interest Expense, net

We incurred $131 million of net interest
expense in 2012, an increase of $44 million compared to net interest expense of $87 million in 2011. This increase in interest expense is primarily due to the partial repurchase of our 10.75% Notes, 9.5% Notes,
7.125% Notes and 5.375% Notes, on which we incurred $47 million of tender premiums and $3 million of additional charges as a result of this extinguishment. In addition, there was an increase in interest expense of
$16 million on the issuance of $300 million aggregate principal amount of senior 4.4% Notes due 2022 and $250 million aggregate principal amount of senior 6.25% Notes due 2042. These increases were offset by the decrease in
interest expense of $15 million on the remaining 10.75% Notes, 9.5% Notes, 7.125% Notes and 5.375% Notes. We expect to have approximately $90 million of interest expense in 2013.

Income Taxes

For 2012,
our income tax expense amounted to $58 million compared to a tax expense of $133 million in 2011, which approximated an effective tax rate of 25% and 26% for 2012 and 2011, respectively.

A number of items impacted the 2012 effective tax rate. We recognized a tax benefit of $10 million for the U.S. manufacturing
deduction and recorded an $8 million tax benefit related to federal, state, and provincial credits and special deductions. The effective tax rate for 2012 was also impacted by an increase in our unrecognized tax benefits of $6 million,
mainly accrued interest, and a $3 million benefit related to enacted tax law changes, mainly a tax rate reduction in Sweden, which is partially offset by U.S. tax law changes in several states.

A number of items impacted the 2011 effective tax rate. In 2011, we had a significantly larger manufacturing deduction in the U.S. than
in prior years since we utilized the remaining federal net operating loss carryforward in 2010. This deduction resulted in a tax benefit of $12 million and we also recorded a $16 million tax benefit related to federal, state, and
provincial credits and special deductions. Additionally, we recognized a state tax benefit of $3 million due to the U.S. restructuring that impacted the 2011 effective tax rate by reducing state income tax expense.

In 2012, we recorded a valuation allowance of $10 million related to certain foreign loss carryforwards. Of this amount, $9 million has been accounted for as part of a business combination and
$1 million impacted the overall consolidated effective tax rate for 2012. In 2011, we recorded a valuation allowance of $4 million related to state tax credits in the U.S. that we expect will expire prior to utilization. This impacted the
U.S. and overall consolidated effective tax rate for 2011.

Equity Loss

We incurred a $6 million equity loss, net of taxes of nil, with regard to our joint venture Celluforce Inc. in 2012 (2011-
$7 million).

Net Earnings

Net earnings amounted to $172 million ($4.76 per common share on a diluted basis) in 2012, a decrease of $193 million compared to net earnings of $365 million ($9.08 per common
share on a diluted basis) in 2011, mainly due to the factors mentioned above.

PULP AND PAPER

SELECTED INFORMATION

Year endedDecember 31, 2013

Year endedDecember 31, 2012

Year endedDecember 31, 2011

(In millions of dollars, unless otherwise noted)

Sales

Total sales

$

4,843

$

5,088

$

5,542

Operating income

171

330

581

Shipments

Paper (in thousands of ST)manufactured

3,260

3,320

3,534

Pulp (in thousands of ADMT)third party

1,445

1,557

1,497

Sales and Operating Income

Sales

Sales in our Pulp and Paper segment amounted to
$4,843 million in 2013, a decrease of $245 million, or 5%, compared to sales of $5,088 million in 2012. This decrease in sales is mainly attributable the sale of Ariva U.S. in the third quarter of 2013 ($158 million), a decrease
in our average selling price for manufactured paper ($73 million, reflecting a selling price decrease of approximately 2% when compared to the average selling price of 2012), a decrease in our pulp volume ($52 million, a decrease of
approximately 5% when compared to 2012) and a decrease in our manufactured paper volume ($27 million, a decrease of approximately 1% when compared to 2012). These decreases were partially offset by an increase in our average selling price for
pulp ($43 million reflecting a selling price increase of approximately 5% when compared to the average selling price of 2012).

Sales in our Pulp and Paper segment amounted to $5,088 million in 2012, a decrease of $453 million, or approximately 8%, compared to sales of $5,541 million in 2011. This decrease in sales
is mostly attributable to the decrease in our average selling prices for pulp (an impact of $184 million reflecting a selling price decrease of approximately 16% when compared to the average selling price of 2011) and average selling prices for
manufactured paper (an impact of $26 million reflecting a selling price decrease of less than 1% when compared to the average selling price of 2011), lower shipments of manufactured paper ($206 million, a decrease of approximately 6% when
compared to 2011), in part due to a decrease in demand for our paper as well as lower

deliveries in our former Distribution segment resulting from difficult market conditions and the sale of a business unit at the end of the first quarter of 2011 ($96 million). These decreases
were partially offset by an increase in pulp shipments ($52 million, an increase of approximately 4% when compared to 2011).

Operating Income

Operating income in our Pulp and Paper segment amounted to $171 million in 2013, a decrease of $159 million, when compared to
operating income of $330 million in 2012. Overall, our operating results declined when compared to 2012, primarily due to lower selling prices for manufactured paper. Also contributing to the decrease in operating income was the negative impact
of lower production volume in pulp and paper ($45 million), higher costs for fiber and energy ($28 million and $17 million, respectively), higher maintenance costs ($15 million), higher freight costs ($13 million), higher
compensation costs ($11 million), a decrease in pulp and manufactured paper volumes ($25 million) and a decrease in sales attributable to the sale of Ariva U.S. in the third quarter of 2013 ($10 million). We also converted AFTC to CBPC
($26 million) in the first quarter of 2013 and recorded a loss on sale of property, plant and equipment in relation to the sale of Ariva U.S. ($20 million) in the third quarter of 2013. These decreases were partially offset by higher
average selling prices for pulp ($43 million), the positive impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($29 million), the gain on sale Port Edwards assets ($10 million) in the
first quarter of 2013 and a decrease in outside purchased pulp costs ($8 million). In addition, we had lower closure and restructuring costs of $19 million (mostly due to the permanent shutdown of machines at our Ashdown mill and Kamloops
mill in 2012), partially offset by higher impairment and write-off of property, plant and equipment of $6 million in 2013.

Operating income in our Pulp and Paper segment amounted to $330 million in 2012, a decrease of $251 million, when compared to
operating income of $581 million in 2011. Overall, our operating results declined when compared to 2011, primarily due to lower selling prices for both pulp and manufactured paper. Also contributing to the decrease in operating income were
higher costs for chemicals and fiber ($30 million and $29 million, respectively), an increase in lack-of-order and maintenance downtime of $96 million, mostly due to decrease in demand for our paper and the negative impact of stronger
Canadian dollar on our Canadian denominated expenses, net of our hedging program ($3 million). These factors were partially offset by the decrease in energy costs ($18 million) in part due to a reduction in the price of natural gas due to
high North-American supply, decrease in outside purchased pulp costs of $10 million due to a decrease in the market price of recycled fiber in 2012 when compared to 2011 and decrease in freight costs ($5 million). In addition, we had lower
impairment and write-off of property, plant and equipment of $71 million and lower closure and restructuring costs of $24 million, when compared to 2011, both of which are partially due to the permanent shut down of one of our paper
machines at our Ashdown mill in the third quarter of 2011.

Pricing Environment

Paper

Average sales
prices in our manufactured paper business experienced a decrease of $22/ton or approximately 2%, in 2013 compared to 2012. In 2012, our average paper sales prices in our manufactured paper business experienced a small decrease compared to in 2011.
Our average sales prices were lower by $5/ton or less than 1%, in 2012 compared to 2011.

Pulp

Our total average pulp sales prices experienced an increase of $29/metric ton, or approximately 5% in 2013 compared to 2012. Our total
average pulp sales prices experienced a significant decrease of $123/metric ton, or 16%, in 2012 compared to 2011.

Our manufactured paper shipments decreased by
60,000 tons, or approximately 2% in 2013 compared to 2012, primarily due to a decrease in demand for our paper. Our manufactured paper shipments decreased by 214,000tons, or approximately 6%, in 2012 compared to 2011, primarily due
to a decrease in demand for our paper and the dedication of resources to produce lower basis weight grades at our Malboro, South Carolina pulp and paper mill in order to fulfill requirements per the Appvion agreement.

Pulp Shipments

Our pulp trade shipments decreased by 112,000metric tons, or 7%, in 2013 compared to 2012, primarily due to lower market
demand. Our pulp trade shipments increased by 60,000metric tons, or 4%, in 2012 compared to 2011. This increase was primarily due to lack-of-order downtime for paper. As such, we strategically increased our pulp production and third
party sales.

Labor

In the U.S., an umbrella agreement with the United Steelworkers Union (USW) expiring in 2015 and affecting approximately 2,900 employees
at eight U.S. mills and one converting operation was ratified effective December 1, 2011. This agreement only covers certain economic elements, and all other issues are negotiated at each operating location, as the related collective bargaining
agreements (CBAs) become subject to renewal. The parties have agreed not to strike or lock-out during the terms of the respective local agreements. Should the parties fail to reach an agreement during the local negotiations, the related
collective bargaining agreements are automatically renewed for another four years. All agreements in the U.S. are currently ratified.

Canadian collective agreements are unrelated to the umbrella agreement with the USW covering our U.S. locations. Ariva Lachine (31 unionized employees) and Quebec City (5 unionized employees)
Warehouses ratified agreements in January 2014 with the Teamsters. In April 2014, Collective Agreements will expire at Windsor Mill in Quebec (707 unionized employees), Espanola Mill in Ontario (415 unionized employees) and Mississauga
Warehouse Unifor locals (36 unionized employees). Negotiation dates for these locations have not been set. The Ottawa warehouse for Ariva (4 unionized employees) will also negotiate at same time as the Mississauga Warehouse Unifor locals.

Closure and Restructuring

In 2013, we incurred $10 million of closure and restructuring costs ($29 million in 2012), and $20 million of impairment and write-down of property, plant and equipment and intangible
assets in 2013 ($14 million in 2012).

Closure and restructuring costs are based on managements best estimates.
Although we do not anticipate significant changes, actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished
and other business developments. As such, additional costs and further write-downs may be required in future periods.

For
details on the closure and restructuring, refer to Part II, Item 8, Financial Statement and Supplementary Data, under Note 16 Closure and Restructuring Costs and Liability of this Annual Report on Form 10-K.

Alternative Fuel Tax Credit and Cellulosic Biofuel Producer Credit

As of December 31, 2013, we have gross unrecognized tax benefits and interest of $195 million and related deferred tax assets of $19 million associated with the AFTC claimed on our 2009 tax return.
The recognition of these benefits, $176 million net of deferred taxes, would impact the effective tax rate. During the second quarter

of 2012, the IRS began an audit of our 2009 U.S. income tax return and in the third quarter of 2013 expanded the audit period to include the tax returns for the 2010 and 2011 tax years. The
completion of the audit by the IRS or the issuance of authoritative guidance could result in the release of the provision or settlement of the liability in cash of some or all of these previously unrecognized tax benefits. We reasonably expect the
audit to be settled within the next 12 months which could result in a significant change to the amount of unrecognized tax benefits. However, audit outcomes and the timing of audit settlements are subject to significant uncertainty. Additional
information regarding unrecognized tax benefits is included in Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K, under Note 10 Income taxes.

Natural Resources Canada Pulp and Paper Green Transformation Program

On June 17, 2009, the Government of Canada announced that it was developing a Pulp and Paper Green Transformation Program (the Green Transformation Program) to help pulp and paper
companies make investments to improve the environmental performance of their Canadian facilities. The Green Transformation Program was capped at CDN$1 billion. The funding of capital investments at eligible mills had to be completed no later
than March 31, 2012 and all projects were subject to the approval of the Government of Canada.

We were allocated
CDN$143 million through this Green Transformation Program, of which all was approved and received (CDN$1 million received in 2013, CDN$16 million received in 2012 and CDN$73 million received in 2011), mostly related to eligible
projects at our Kamloops, Dryden and Windsor pulp and paper mills. The funds were spent on capital projects to improve energy efficiency and environmental performance in our Canadian pulp and paper mills and any amounts received were accounted for
as an offset to the applicable plant and equipment asset amount.

PERSONAL CARE

SELECTED INFORMATION

Year
endedDecember 31, 2013

Year
endedDecember 31, 2012

Year
endedDecember 31, 2011

(In millions of dollars)

Sales

$

566

$

399

$

71

Operating income

43

45

7

Sales and Operating Income

Sales

Sales in our Personal Care segment amounted to
$566 million in 2013, an increase of $167 million, when compared to sales of $399 million in 2012. This increase is due primarily to the acquisition of AHP in the third quarter of 2013 and the inclusion of a full year of sales from
Attends Europe and EAM following their acquisitions in the first and second quarter of 2012, respectively.

Sales in our
Personal Care segment amounted to $399 million in 2012, an increase of $328 million, when compared to sales of $71 million in 2011. This increase is mainly due to the inclusion of a full year of Attends US of $140 million, as
well as the acquisition of Attends Europe and EAM in the first and second quarter of 2012, respectively, of $189 million.

For details on the AHP acquisition, refer to Part II, Item 8, Financial Statement and Supplementary Data, under Note 3
Acquisition of Businesses of this Annual Report on Form 10-K.

Operating Income

Operating income amounted to $43 million in 2013, a decrease of $2 million, when compared to operating income of
$45 million in 2012. This decrease is mainly due to an increase in selling, general and administrative

costs, mostly due to the creation of our new divisional head office in Raleigh, North Carolina for our Personal Care segment, an increase in raw material costs and an increase in salaries and
wages. This decrease was partially offset by a full year of Attends Europe and EAM and the acquisition of AHP in the third quarter of 2013.

Operating income amounted to $45 million in 2012, an increase of $38 million, when compared to operating income of $7 million in 2011. This increase is mainly due to the inclusion of a full
year of Attends US as well as the acquisition of Attends Europe and EAM in the first and second quarter of 2012, respectively. This increase was partially offset by an increase in selling, general and administrative costs, mostly due to the creation
of our new divisional head office in Raleigh, North Carolina for our Personal Care segment.

Operations

Labor

We employ
approximately 1,415 employees in our Personal Care segment. Approximately 944 non-unionized employees are in North America and 471 employees are in Europe of which the majority are unionized.

For
the year ended December 31, 2013, stock-based compensation expense recognized in our results of operations was $13 million (2012  $20 million; 2011  $23 million) for all of the outstanding awards. Stock-based
compensation costs not yet recognized amounted to $10 million (2012  $11 million; 2011  $16 million) and will be recognized over the remaining service period of approximately 25 months. The aggregate value of liability awards
settled in 2013 was $10 million. The total fair value of shares vested in 2012 was $6 million. Stock-based compensation costs for performance awards are based on managements best estimate of the final performance measurement.

LIQUIDITY AND CAPITAL RESOURCES

Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt. We expect to fund
our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our contractually committed credit facility, of which $439 million is currently undrawn and available or
through our receivables securitization facility, of which $92 million is currently undrawn and available. Under adverse market conditions, there can be no assurance that these agreements would be available or sufficient. See Capital
Resources below.

Our ability to make payments on and to refinance our indebtedness, including debt we could incur under
the credit and receivable securitization facilities and outstanding Domtar Corporation notes, and for ongoing operating costs including pension contributions, working capital and capital expenditures will depend on our ability to generate cash in
the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our credit and receivable securitization facilities and debt indentures, as well as terms of any future
indebtedness, impose, or may impose, various restrictions and covenants on us that could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities.

Cash flows provided from operating activities totaled $411 million in 2013, a $140 million decrease compared to cash flows provided from operating activities of $551 million in 2012. This
decrease in cash flows provided from operating activities is primarily due to decreased profitability in 2013 when compared to 2012 ($81 million).

In 2013, we settled the litigation with George Weston Limited for $49 million ($46 million after tax) and had a net benefit related to the conversion of AFTC to CBPC ($15 million net income
benefit). We also paid a premium on the redemption of the 5.375% Notes due 2013 ($2 million), consumed more cash from higher working capital requirements and consumed less cash for pension contributions.

In 2012, we paid tender premiums on the partial repurchase of our 5.375% Notes due 2013, 7.125% Notes due 2015, 9.5% Notes
due 2016 and 10.75% Notes due 2017 ($47 million).

Cash flows provided from operating activities totaled $551 million in
2012, a $332 million decrease compared to $883 million in 2011. This decrease in cash flows provided from operating activities is primarily due to a decrease in profitability and the negative impact of the $47 million tender premiums
paid as described above.

Our operating cash flow requirements are primarily for salaries and benefits, the purchase of fiber,
energy and raw materials and other expenses such as property taxes.

Investing Activities

Cash flows used for investing activities in 2013 amounted to $469 million, a $17 million decrease compared to cash flows used
for investing activities of $486 million in 2012.

The use of cash in 2013 was mainly due to the acquisition of AHP in
the third quarter of 2013 ($276 million) and additions to property, plant and equipment ($242 million) primarily in our Personal Care segment for additional production lines. This was partially offset by the proceeds from sale of our Ariva U.S.
business ($45 million), on the disposal of Port Edwards assets ($9 million) and by the proceeds from the sale on the disposal of land in Cornwall, Ontario ($6 million) in 2013.

The use of cash in 2012 was mainly due to the acquisition of Attends Europe in the first quarter of 2012 for $232 million
(173 million) and EAM for $61 million in the second quarter of 2012 and additions to property, plant and equipment ($236 million) primarily in our Personal Care segment for additional production lines. In addition, we invested
$6 million in our joint venture in 2012. This was partially offset by proceeds of $49 million in 2012, mostly related to the sale of hydro assets in Ottawa, Ontario and Gatineau, Quebec in 2012 ($46 million).

Our annual capital expenditures are expected to be between $260 million and $280 million, or 70% and 75% of our estimated
annual depreciation expense in 2014.

Cash flows used for investing activities in 2012 amounted to $486 million, a
$91 million increase compared to cash flows used for investing activities of $395 million in 2011.

The use of cash
in 2011 was mainly due to the acquisition of Attends US for $288 million and additions to property, plant and equipment ($144 million) due mainly to additions in the Personal Care segment as well as increased spending in the Pulp and Paper
segment for upgrades and modifications to our existing assets. In addition, we invested $7 million in our joint venture in 2011. This was partially offset by the proceeds of $34 million, mostly related to the sale our Gilmour Land
($18 million) and to the sale of our Cerritos facility ($7 million) and by the proceeds from the sale of businesses and investments ($10 million) related to sale of a small business unit in our former Ariva U.S. business.

Cash flows provided from financing activities totaled $54 million in 2013 compared to cash flows provided from financing activities of $152 million in 2012.

The source of cash in 2013 was primarily the result of the issuance of $250 million of 6.75% Notes due 2044 in the fourth quarter of 2013
for net proceeds of $249 million and borrowing of $160 million under our existing Credit Agreement (the Credit Agreement). These items were partially offset by the redemption of the outstanding 5.375% Notes due 2013 in the first
quarter of 2013 ($71 million), repayment of capital leases related to land and buildings ($30 million), dividend payments ($67 million) and the repurchase of our common stock ($183 million).

The source of cash in 2012 was mostly driven by the issuance of $300 million of 4.4% Notes due 2022 and issuance of $250 million of 6.25%
Notes due 2042 for net proceeds of $548 million. These amounts were partially offset by the repurchase of $1 million of 5.375% Notes due 2013, $47 million of 7.125% Notes due 2015, $31 million of 9.5% Notes due 2016 and $107 million of 10.75% Notes
due 2017 for total cash consideration of $186 million pursuant to a tender offer. We also made dividend payments ($58 million), repurchased our common stock ($157 million) and repaid capital leases relating to land and buildings ($6 million).

Cash flows provided from financing activities totaled $152 million in 2012 compared to cash flows used for financing
activities of $574 million in 2011.

The use of cash in 2011 was primarily due to the repurchase of our common stock
($494 million) and dividend payments ($49 million). In addition, we repurchased our 10.75% Notes for $15 million in the third quarter of 2011.

Capital Resources

Unsecured Notes Redemption

During the first quarter of 2013, we redeemed our outstanding 5.375% Notes due 2013, for par value of $71 million and incurred
$2 million of premiums paid and additional charges of $1 million, included in Interest expense on the Consolidated Statement of Earnings and Comprehensive Income.

As a result of a cash tender offer during the first quarter of 2012, we repurchased $1 million of the 5.375% Notes due 2013, $47 million of the 7.125% Notes due 2015,
$31 million of the 9.5% Notes due 2016 and $107 million of the 10.75% Notes due 2017. We incurred $47 million of tender premiums and additional charges of $3 million as a result of this repurchase, both of which are included
in Interest expense in the Consolidated Statements of Earnings and Comprehensive Income.

During the third quarter of 2011, we
repurchased $15 million of the 10.75% Notes due 2017 and recorded a charge of $4 million on repurchase of the Notes.

Senior Notes Offering

On November 30, 2013, we issued $250 million 6.75% Notes due 2044 for net proceeds of $249 million. The net
proceeds from the offering were used to fund a portion of the purchase price of the acquisition of Laboratorios Indas, S.A.U. For details, refer to Part II, Item 8, Financial Statement and Supplementary Data, under Note 27 Subsequent
Event of this Annual Report on Form 10-K.

On August 20, 2012, we issued $250 million of 6.25% Notes due
2042, for net proceeds of $247 million. The net proceeds from the offering of the Notes were used for general corporate purposes.

On March 7, 2012, we issued $300 million of 4.4% Notes due 2022, for net proceeds
of $297 million. The net proceeds from the offering of the notes were used to fund a portion of the repurchase of the 5.375% Notes due 2013, 7.125% Notes due 2015, 9.5% Notes due 2016 and 10.75% Notes due 2017 pursuant to a tender offer,
including the payment of accrued interest and applicable early tender premiums, as well as for general corporate purposes.

The Notes are redeemable, in whole or in part, at our option at any time. In the event of a change in control, each holder will have the
right to require us to repurchase all or any part of such holders Notes at a purchase price in cash equal to 101% of the principal amount of the Notes, plus any accrued and unpaid interest. The Notes are unsecured obligations and rank equally
with existing and future unsecured and unsubordinated indebtedness. The Notes are fully and unconditionally guaranteed on an unsecured basis by certain U.S. 100% owned subsidiaries, which currently guarantee indebtedness under the Credit Agreement.

Bank Facility

On June 15, 2013, we entered into an amended and restated Credit Agreement, among us, certain subsidiary borrowers, certain
subsidiary guarantors and the lenders and agents party thereto. The Credit Agreement amended our existing $600 million revolving credit facility that was scheduled to mature June 23, 2015. The Credit Agreement provides for a revolving
credit facility (including a letter of credit sub-facility and a swingline sub-facility) that matures on June 15, 2017. The maximum aggregate amount of availability under the revolving Credit Agreement is $600 million, which may be
borrowed in U.S. Dollars, Canadian Dollars (in an amount up to the Canadian Dollar equivalent of $150 million) and Euros (in an amount up to the Euro equivalent of $200 million). Borrowings may be made by us, by our U.S. subsidiary Domtar
Paper Company, LLC, by our Canadian subsidiary Domtar Inc. and by any additional borrower designated by us in accordance with the Credit Agreement. We may increase the maximum aggregate amount of availability under the revolving Credit Agreement by
up to $400 million, and the Borrowers may extend the final maturity of the Credit Agreement by one year, if, in each case, certain conditions are satisfied, including (i) the absence of any event of default or default under the Credit
Agreement and (ii) the consent of the lenders participating in each such increase or extension, as applicable.

Borrowings under the Credit Agreement will bear interest at a rate dependent on our credit ratings at the time of such borrowing and will
be calculated at the Borrowers option according to a base rate, prime rate, LIBO rate, EURIBO rate or the Canadian bankers acceptance rate plus an applicable margin, as the case may be. In addition, we must pay facility fees quarterly at
rates dependent on our credit ratings.

The Credit Agreement contains customary covenants, including two financial covenants:
(i) an interest coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Credit Agreement that must be maintained at a level of not greater
than 3.75 to 1. At December 31, 2013, we were in compliance with our covenants, and borrowing under the Credit Agreement amounted to $160 million (December 31, 2012  nil). At December 31, 2013, we had outstanding letters of credit
amounting to $1 million under this credit facility (December 31, 2012- $12 million). We had $439 million available under our contractually committed credit facility at December 31, 2013.

All borrowings under the Credit Agreement are unsecured. However, certain of our domestic subsidiaries unconditionally guarantee any
obligations from time to time arising under the Credit Agreement, and certain of our subsidiaries that are not organized in the United States unconditionally guarantee any obligations of Domtar Inc., the Canadian subsidiary borrower, or of
additional borrowers that are not organized in the United States, under the Credit Agreement, in each case, subject to the provisions of the Credit Agreement.

If there is a change of control, as defined under the Credit Agreement, the Credit Agreement will be terminated and any outstanding obligations under the Credit Agreement will automatically become
immediately due and payable.

A significant or prolonged downturn in general business and economic conditions may affect our
ability to comply with our covenants or meet those financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary to our current business objectives.

A breach of any of our Credit Agreement covenants, including failure to maintain a required
ratio or meet a required test, may result in an event of default under the Credit Agreement. This may allow the administrative agent under the Credit Agreement to declare all amounts outstanding thereunder, together with accrued interest, to be
immediately due and payable. If this occurs, we may not be able to refinance the indebtedness on favorable terms, or at all, or repay the accelerated indebtedness.

Receivables Securitization

We have a receivables securitization facility
that matures in March 2016, with a utilization limit for borrowings or letters of credit of $138 million at December 31, 2013. This was extended in the first quarter of 2013 from the prior maturity date of November 2013.

At December 31, 2013, we had no borrowings and $46 million of letters of credit under the program (December 31, 2012  nil
and $38 million, respectively). The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the credit facility, or the failure by Domtar to
repay or satisfy material obligations.

Domtar Canada Paper Inc. Exchangeable Shares

Upon the consummation of a series of transactions whereby the Fine Paper Business of Weyerhaeuser Company was transferred to us and we
acquired Domtar Inc. on March 7, 2007 (the Transaction), Domtar Inc. shareholders had the option to receive either common stock of the Company or shares of Domtar (Canada) Paper Inc. that are exchangeable for common stock of the
Company. As of December 31, 2013, there were 561,510 exchangeable shares issued and outstanding. The exchangeable shares of Domtar (Canada) Paper Inc. are intended to be substantially the economic equivalent to shares of the Companys
common stock. These shareholders may exchange the exchangeable shares for shares of Domtar Corporation common stock on a one-for-one basis at any time. The exchangeable shares may be redeemed by Domtar (Canada) Paper Inc. on a redemption date to be
set by the Board of Directors, which cannot be prior to July 31, 2023, or upon the occurrence of certain specified events, including, upon at least 60 days prior written notice to the holders, in the event less than
416,667
exchangeable shares (excluding any exchangeable shares held directly or indirectly by us) are outstanding at any time.

OFF BALANCE SHEET ARRANGEMENTS

In the normal course of business, we finance certain of our activities off balance
sheet through operating leases.

GUARANTEES

Indemnifications

In the normal course of business, we offer
indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties
included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At
December 31, 2013, we are unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be
reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded significant expenses in the past.

We have indemnified and held harmless the trustees of our pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of
the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from us or for failing to act in the absence of authorized instructions. These indemnifications survive the
termination of such agreements. At December 31, 2013, we have not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

In the normal course of business, we enter into certain contractual obligations and commercial commitments. The following tables provide
our obligations and commitments at December 31, 2013:

CONTRACT TYPE

2014

2015

2016

2017

2018

THEREAFTER

TOTAL

(in million of dollars)

Notes (excluding interest)



$

167

$

94

$

278



$

800

$

1,339

Revolving credit facility







160





160

Capital leases (including interest)

6

4

3

1

1

11

26

Long-term debt

6

171

97

439

1

811

1,525

Operating leases

28

19

13

9

8

44

121

Liabilities related to uncertain tax benefits (1)













259

Total obligations

$

34

$

190

$

110

$

448

$

9

$

855

1,905

COMMERCIAL OBLIGATIONS

COMMITMENT TYPE

2014

2015

2016

2017

2018

THEREAFTER

TOTAL

(in million of dollars)

Other commercial commitments (2)

$

89

$

5

$

3

$

3

$

2

$



$

102

(1)

We have recognized total liabilities related to uncertain tax benefits of $259 million as of December 31, 2013. The timing of payments, if any, related to these
obligations is uncertain.

(2)

Includes commitments to purchase property, plant and equipment, roundwood, wood chips, gas and certain chemicals. Purchase orders in the normal course of business are
excluded.

In addition, we expect to contribute a minimum total amount of $24 million to the pension plans
in 2014.

For 2014 and the foreseeable future, we expect cash flows from operations and from our various sources of financing
to be sufficient to meet our contractual obligations and commercial commitments.

ACCOUNTING CHANGES IMPLEMENTED

Comprehensive Income

In February 2013, the FASB issued Accounting Standards Update (ASU) 2013-02, an update to Comprehensive Income, which requires an entity to provide information regarding the amounts
reclassified out of accumulated other comprehensive income by component. The standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified
from each component of accumulated other comprehensive income based on its source, and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would
instead cross reference to the related footnote for additional

information. We adopted the new requirement on January 1, 2013 with no impact on our consolidated financial statements except for the change in presentation.

We have chosen to present the new information as a separate disclosure in the notes to the consolidated financial statements.

FUTURE ACCOUNTING CHANGES

Foreign Currency Matters

In March 2013, the FASB issued ASU 2013-05, an update to Foreign Currency Matters, which
indicates that a cumulative translation adjustment is attached to the parents investment in a foreign entity and should be released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire amount of
the cumulative translation adjustment associated with the foreign entity would be released when there has been (i) a sale of a subsidiary or a group of net assets within a foreign entity and the sale represents the substantially complete
liquidation of the investment in the foreign entity; (ii) a loss of a controlling financial interest in an investment in a foreign entity; or (iii) a step acquisition for a foreign entity. The update does not change the requirement to release a
pro-rata portion of the cumulative translation adjustment of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity.

The amendments are effective for interim and annual periods beginning after December 15, 2013 and will not have an impact on our consolidated financial statements unless one or more of the
derecognition events stated above occur after the effective date.

Income Taxes

In July 2013, the FASB issued ASU 2013-11, which provides guidance on the financial statement presentation of an unrecognized tax benefit
when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 requires entities to present an unrecognized tax benefit as a reduction of a deferred tax asset for a NOL or tax credit
carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. This accounting standard update requires entities to assess whether to net the
unrecognized tax benefit with a deferred tax asset as of the reporting date. The amendments are effective for interim and annual periods beginning after December 15, 2013. Other than the change in the presentation, we have determined these
changes will not have a material impact on the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect our results of operations and financial position. On an ongoing basis, management reviews its estimates, including those related to environmental matters and other asset retirement obligations, useful lives, impairment of property, plant and
equipment, impairment of intangibles, impairment of goodwill, impairment of indefinite-lived intangible assets, pension plans and other post-retirement benefit plans, income taxes and closure and restructuring costs based on currently available
information. Actual results could differ from those estimates.

Critical accounting policies reflect matters that contain a
significant level of management estimates about future events, reflect the most complex and subjective judgments, and are subject to a fair degree of measurement uncertainty.

Environmental expenditures for effluent treatment, air emission, landfill operation and closure, asbestos containment and removal, bark
pile management, silvicultural activities and site remediation (together referred to as environmental matters) are expensed or capitalized depending on their future economic benefit. In the normal course of business, Domtar Corporation incurs
certain operating costs for environmental matters that are expensed as incurred. Expenditures for property, plant and equipment that prevent future environmental impacts are capitalized and amortized on a straight-line basis over 10 to
40 years. Provisions for environmental matters are not discounted, due to uncertainty with respect to timing of expenditures, and are recorded when remediation efforts are probable and can be reasonably estimated.

We recognize asset retirement obligations, at fair value, in the period in which we incur a legal obligation associated with the
retirement of an asset. Conditional asset retirement obligations are recognized, at fair value, when the fair value of the liability can be reasonably estimated or on a probability-weighted discounted cash flow estimate. The associated costs are
capitalized as part of the carrying value of the related asset and depreciated over its remaining useful life. The liability is accreted using the credit adjusted risk-free interest rate used to discount the cash flow.

The estimate of fair value of the asset retirement obligations is based on the expected future cash flow approach, in which multiple cash
flow scenarios that reflect a range of possible outcomes are considered. We have established cash flow scenarios for each individual asset retirement obligation. Probabilities are applied to each of the cash flow scenarios to arrive at an expected
future cash flow. There is no supplemental risk adjustment made to the expected cash flows. The expected cash flow for each of the asset retirement obligations are discounted using the credit adjusted risk-free interest rate for the corresponding
period until the settlement date. The rates used vary based on the prevailing rate at the moment of recognition of the liability and on its settlement period. The rates used vary between 5.5% and 12.0%.

Cash flow estimates incorporate either assumptions that marketplace participants would use in their estimates of fair value, whenever
that information is available without undue cost and effort, or assumptions developed by internal experts.

In 2013, our
operating expenses for environmental matters amounted to $69 million (2012  $64 million; 2011  $62 million). We made capital expenditures for environmental matters of $4 million in 2013 (2012  $4 million; 2011 
$8 million). No amounts were spent under the Pulp and Paper Green Transformation Program in 2013 as all projects were completed, and reimbursed by the Government of Canada (2012  $6 million; 2011  $83 million), for the
improvement of air emissions and energy efficiency, effluent treatment and remedial actions to address environmental compliance.

An action was commenced by Seaspan International Ltd. (Seaspan) in the Supreme Court of British Columbia, on March 31, 1999 against the Company and others with respect to alleged
contamination of Seaspans site bordering Burrard Inlet in North Vancouver, British Columbia, including contamination of sediments in Burrard Inlet, due to the presence of creosote and heavy metals. Beyond the filing of preliminary pleadings,
no steps have been taken by the parties in this action. On February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan and the Company (responsible persons) in order to define and implement an action
plan to address soil, sediment and groundwater issues. This Order was appealed to the Environmental Appeal Board (Board) on March 17, 2010 but there is no suspension in the execution of this Order unless the Board orders
otherwise. The relevant government authorities selected a remediation approach on July 15, 2011, and on January 8, 2013, the same authorities decided that each responsible persons implementation plan is satisfactory and that the
responsible persons decide which plan is to be used. Most of the remaining appeals that were to be heard before the Board were abandoned by the parties during the course of the Board proceedings which were held in the fall of 2013. Seaspan and
Domtar have selected a remedial plan and are in the process of applying to the Vancouver Fraser Port Authority for permitting approval. We have recorded an environmental reserve to address its estimated exposure and the reasonably possible loss in
excess of the reserve is not considered to be material for this matter.

At December 31, 2013, we had a provision of $67 million for environmental matters
and other asset retirement obligations (2012  $83 million). Certain of these amounts have been discounted due to more certainty of the timing of expenditures using the credit adjusted risk-free interest rate for the corresponding period
until the settlement date. The rates used vary, based on the prevailing rate at the moment of recognition of the liability and on its settlement period. Additional costs, not known or identifiable, could be incurred for remediation efforts. Based on
policies and procedures in place to monitor environmental exposure, management believes that such additional remediation costs would not have a material adverse effect on our financial position, results of operations or cash flows.

While we believe that we have determined the costs for environmental matters likely to be incurred, based on known information, our
ongoing efforts to identify potential environmental concerns that may be associated with the properties may lead to future environmental investigations. These efforts may result in the determination of additional environmental costs and liabilities,
which cannot be reasonably estimated at this time. See Part I, Item 3, Legal Proceedings, under the caption Climate change regulation.

At December 31, 2013, anticipated undiscounted payments in each of the next five years are as follows:

On December 2, 2011, the EPA proposed a new set of standards related to emissions from boilers and process heaters included in some
of our manufacturing processes. These standards are generally referred to as Boiler MACT and seek to require reductions in the emission of certain hazardous air pollutants or surrogates of hazardous air pollutants. The EPA announced the final rule
on December 20, 2012 and it was subsequently published in the Federal Register on January 31, 2013 for major sources. We are developing plans to bring facilities affected by the Boiler MACT rule into compliance by the January 2016
regulatory deadline for major sources. We expect that the capital cost required to comply with the Boiler MACT rules is between $20 million and $30 million. We are currently assessing the associated increase in operating costs as well as alternate
compliance strategies.

The EPA has agreed to reconsider a limited number of issues in the most recent Boiler MACT rule, and
elements of EPAs rule are expected to be legally challenged. The consequences of these activities cannot be predicted. However, at this point, we do not anticipate that significant adjustments to compliance plans will be needed to accommodate
any changes to the final rule.

Useful Lives

Our property, plant and equipment are stated at cost less accumulated depreciation, including asset impairment write-downs. Interest costs are capitalized for significant capital projects. For timber
limits and timberlands, amortization is calculated using the unit of production method. For all other assets, amortization is calculated using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are
amortized over periods of 10 to 40 years and machinery and equipment over periods of 3 to 20 years. No depreciation is recorded on assets under construction.

Our intangible assets are stated at cost less accumulated amortization, including any applicable intangible asset impairment write-down. Water rights, customer relationships, technology, trade names,
supplier and non-compete agreements and license rights are amortized on a straight-line basis over their estimated useful lives, which vary from 5 to 40 years. Some of our trade names and license rights are considered to have indefinite useful
lives and therefore are not amortized.

On a regular basis, we review the estimated useful lives of our property, plant and
equipment as well as our intangible assets. Assessing the reasonableness of the estimated useful lives of property, plant and equipment and intangible assets requires judgment and is based on currently available information. Changes in circumstances
such as technological advances, changes to our business strategy, changes to our capital strategy or changes in regulation can result in the actual useful lives differing from our estimates. Revisions to the estimated useful lives of property, plant
and equipment and intangible assets constitute a change in accounting estimate and are dealt with prospectively by amending depreciation and amortization rates.

A change in the remaining estimated useful life of a group of assets, or their estimated net salvage value, will affect the depreciation or amortization rate used to depreciate or amortize the group of
assets and thus affect depreciation or amortization expense as reported in our results of operations. In 2013, we recorded depreciation and amortization expense of $376 million compared to $385 million and $376 million in 2012 and 2011,
respectively. At December 31, 2013, we had property, plant and equipment with a net book value of $3,289 million ($3,401 million in 2012) and intangible assets, net of amortization of $407 million ($309 million in 2012).

Impairment of Property, Plant and Equipment

Property, plant and equipment are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that, at the lowest level of determinable cash flows, the carrying value of
the assets may not be recoverable. Step I of the impairment test assesses if the carrying value of the assets exceeds their estimated undiscounted future cash flows in order to assess if the property, plant and equipment are impaired. In the
event the estimated undiscounted future cash flows are lower than the net book value of the assets, a Step II impairment test must be carried out to determine the impairment charge. In Step II, property, plant and equipment are written
down to their estimated fair values. Given that there is generally no readily available quoted value for our property, plant and equipment, we determine fair value of our assets using the estimated discounted future cash flows (DCF)
expected from their use and eventual disposition, and by using the liquidation or salvage value in the case of idled assets. The DCF in Step II is based on the undiscounted cash flows used in Step I.

Estimates of undiscounted future cash flows used to test the recoverability of the property, plant and equipment included key assumptions
related to selling prices, inflation-adjusted cost projections, forecasted exchange rate for the U.S. dollar when applicable and the estimated useful life of the property, plant and equipment. For details, refer to Part II, Item 8, Financial
Statements and Supplementary Data, under Note 4 Impairment and Write-Down of Property, Plant and Equipment and Intangible Assets of this Annual Report on Form 10-K.

Impairment of intangibles

Definite-lived intangibles assets are reviewed
for impairment upon the occurrence of events or changes in circumstances indicating that, at the lowest level of determinable cash flows, the carrying value of the intangible may not be recoverable. Deterioration in sales and operating results of
our former Ariva U.S. business led us to test the customer relationships of this asset group for recoverability. As of December 31, 2012, we recognized an impairment charge of $5 million included in Impairment and write-down of property, plant
and equipment and intangible assets related to customer relationships in our Pulp and Paper segment, based on the revised long-term forecast in the fourth quarter of 2012. We concluded that no further impairment or impairment indicators exist as of
December 31, 2012. For details, refer to Part II, Item 8, Financial Statements and Supplementary Data, under Note 26 Sales of Ariva U.S. of this Annual Report on Form 10-K.

Changes in our assumptions and estimates may affect our forecasts and may lead to an outcome where impairment charges would be required.
In addition, actual results may vary from our forecasts, and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where our conclusions may differ in reflection of prevailing market conditions.

All goodwill as of December 31, 2013 resided in our Personal Care reporting segment. The goodwill in the Personal Care reporting segment originates from the acquisitions of Attends US on
September 1, 2011 ($163 million), Attends Europe on March 1, 2012 ($71 million), EAM on May 10, 2012 ($31 million) and AHP on July 1, 2013 ($103 million).

For purposes of impairment testing, goodwill must be assigned to one or more of our reporting units. We test goodwill at the reporting unit level. Goodwill is not amortized and is evaluated at the
beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, including goodwill.

In performing the qualitative assessment, we identify
the relevant drivers of fair value of a reporting unit and the relevant events and circumstances that may have an impact on those drivers of fair value. This process involves significant judgment and assumptions including the assessment of the
results of the most recent fair value calculations, the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific events affecting us and the business, and making the
assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the
fair value of a reporting unit is less than its carrying amount, then performing the Step I of the two-step impairment test is necessary. We can also elect to bypass the qualitative assessment and proceed directly to Step 1 of the impairment test.

As a result of the on-going and planned integration of operations within Personal Care, the reporting unit for the testing of
goodwill is expected to be the entire personal care reporting segment. In 2013, we elected to perform the Step 1 goodwill impairment test on Attends US, Attends Europe and EAM. We did not perform a Step 1 test on AHP as we acquired the business on
July 1, 2013 and completed the fair and allocation of purchase price in the fourth quarter of 2013.

The Step I goodwill
impairment test determines whether the fair value of a reporting unit exceeds the net carrying amount of that reporting unit, including goodwill, as of the assessment date in order to assess if goodwill is impaired. If the fair value is greater than
the net carrying amount, including goodwill, no impairment is necessary. In the event that the net carrying amount, including goodwill exceeds the fair value, the Step II goodwill impairment test must be performed in order to determine the amount of
the impairment charge. The implied fair value of goodwill in this test is estimated in the same way as goodwill was determined at the date of the acquisition in a business combination. That is, the excess of the fair value of the reporting unit over
the fair value of the identifiable net assets of the reporting unit represents the implied value of goodwill. To accomplish this Step II test, the fair value of the reporting units goodwill must be estimated and compared to its carrying value.
The excess of the carrying value over the fair value is taken as an impairment charge in the period.

In the first step of the
impairment test, we estimate the fair value of our reporting units using fair values derived from the income approach. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash
flows. The key estimates and factors of cash flow projections include, but are not limited to, managements estimates of revenue growth rates and profit margins, taking into consideration economic indicators, industry and market conditions as
well as estimates of capital expenditures and long-term revenue growth rates. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics.

The result of the Step 1 analysis was that the estimated fair value exceeded the carrying amount, including goodwill, by a significant
amount. As such, the results of the Step 1 analysis for the Attends US, Attends Europe and EAM reporting units did not result in any impairment charges. In estimating the fair value of our reporting units, we have taken into consideration the
industry and market trends that existed as of October 1, 2013, the date of the annual goodwill impairment test, for each respective reporting unit.

A 100 basis points increase in the discount rates used in the tests or a 100 basis point
decrease in the long-term revenue growth assumptions would not change the conclusion of the Step 1 tests.

We will continue to
monitor goodwill on an annual basis as of the beginning of our fourth fiscal quarter and whenever events or changes in circumstances, such as significant adverse changes in business climate or operating results, changes in managements business
strategy or significant declines in our stock price, indicate that there may be potential indicator of impairment.

In the
fourth quarter of 2013, we assessed qualitative factors to determine whether the existence of events or circumstances led to a determination that it was more likely than not that the fair value of the AHP reporting unit was less than its carrying
amount. After assessing the totality of events and circumstances, we determined it was more likely than not that the fair value of the reporting unit was greater than its carrying amount. Thus, performing the two-step impairment test was unnecessary
and no impairment charge was recorded for goodwill.

In the fourth quarter of 2012, we assessed qualitative factors to
determine whether the existence of events or circumstances led to a determination that it was more likely than not that the fair value of the reporting unit was less than its carrying amount. After assessing the totality of events and circumstances,
we determined it was more likely than not that the fair value of the reporting unit was greater than its carrying amount. Thus, performing the two-step impairment test was unnecessary and no impairment charge was recorded for goodwill.

Impairment of indefinite-lived intangible assets

The indefinite-lived intangible assets in the Personal Care segment originate from the acquisitions of Attends US on September 1, 2011 ($61 million) and Attends Europe on March 1, 2012 ($54
million), and both refer to trade names. In addition, there are license rights in the Pulp and Paper segment following the acquisition of Xeroxs paper and print media products on June 1, 2013 ($6 million).

We test indefinite-lived intangible assets at each of the assets level. Indefinite-lived intangibles assets are not amortized and are
evaluated at the beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair
value of the indefinite-life intangible asset is less than its carrying amount.

In performing the qualitative assessment, we
identify the relevant drivers of fair value of an indefinite-life intangible asset and the relevant events and circumstances that may have an impact on those drivers of fair value. This process involves significant judgment and assumptions including
the assessment of the results of the most recent fair value calculations, the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific events affecting us and the business,
and making the assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact. If, after assessing the totality of events or circumstances, we determine it is more likely than
not that the fair value of an indefinite-life intangible asset is less than its carrying amount, then we perform a quantitative assessment of fair value compared to the carrying amount. If the fair value is greater than the net carrying amount, no
impairment is necessary. In the event that the net carrying amount exceeds the fair value, the excess of the carrying value over the fair value is taken as an impairment charge in the period.

In the fourth quarter of 2013 and 2012, we performed the qualitative assessment of indefinite-lived intangible assets. After assessing
the totality of events and circumstances, we determined it was more likely than not that the fair values of the indefinite-lived intangible assets was greater than their respective carrying amounts. Thus, performing the Step 1 impairment test was
unnecessary and no impairment charge was recorded for indefinite-lived intangible assets.

We have several defined contribution plans and multiemployer plans. The pension expense under these plans is equal to our contribution.
Defined contribution pension expense was $29 million for the year ended December 31, 2013 (2012  $24 million and 2011  $24 million).

We sponsor both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans that cover the majority of our employees. Non-unionized employees in Canada joining the Company after
June 1, 2000, participate in a defined contribution pension plan. Salaried employees in the U.S. joining the Company after January 1, 2008 participate in a defined contribution pension plan. On January 1, 2013, all unionized employees
covered under the agreement with the United Steel Workers not grandfathered under the existing defined benefit pension plans were transitioned to a defined contribution pension plan for future service. We also sponsor a number of other
post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs, medical and dental benefits. We also provide supplemental unfunded defined benefit pension plans to certain senior
management employees.

We account for pensions and other post-retirement benefits in accordance with Compensation-Retirement
Benefits Topic of the Financial Accounting Standards Board-Accounting Standards Committee (FASB ASC) which requires employers to recognize the overfunded or underfunded status of defined benefit pension plans as an asset or liability in
its Consolidated Balance Sheets. Pension and other post-retirement benefit assumptions include the discount rate, the expected long-term rate of return on plan assets, the rate of compensation increase, health care cost trend rates, mortality rates,
employee early retirements and terminations or disabilities. Changes in these assumptions result in actuarial gains or losses which we have amortized over the expected average remaining service life of the active employee group covered by the plans
only to the extent that the unrecognized net actuarial gains and losses are in excess of 10% of the accrued benefit obligation at the beginning of the year over the average remaining service period of approximately 8 years of the active employee
group covered by the pension plans and 8 years of the active employee group covered by the other post-retirement benefits plans.

An expected rate of return on plan assets of 5.8% was considered appropriate by our management for the determination of pension expense for 2013. Effective January 1, 2014, we will use 6.4% as the
expected return on plan assets, which reflects the current view of long-term investment returns. The overall expected long-term rate of return on plan assets is based on managements best estimate of the long-term returns of the major asset
classes (cash and cash equivalents, equities and bonds) weighted by the actual allocation of assets at the measurement date, net of expenses. This rate includes an equity risk premium over government bond returns for equity investments and a
value-added premium for the contribution to returns from active management. The sources used to determine managements best estimate of long-term returns are numerous and include country specific bond yields, which may be derived from the
market using local bond indices or by analysis of the local bond market, and country-specific inflation and investment market expectations derived from market data and analysts or governments expectations as applicable.

We set our discount rate assumption annually to reflect the rates available on high-quality, fixed income debt instruments, with a
duration that is expected to match the timing and amount of expected benefit payments. High-quality debt instruments are corporate bonds with a rating of AA or better. The discount rates at December 31, 2013, for pension plans were estimated at
4.1% for the accrued benefit obligation and 4.8% for the net periodic benefit cost for 2013 and for post-retirement benefit plans were estimated at 4.8% for the accrued benefit obligation and 4.2% for the net periodic benefit cost for 2013.

The rate of compensation increase is another significant assumption in the actuarial model for pension (set at 2.7% for the
accrued benefit obligation and 2.8% for the net periodic benefit cost) and for post-retirement benefits (set at 2.8% for the accrued benefit obligation and 2.7% for the net periodic benefit cost) and is determined based upon our long-term plans for
such increases.

For measurement purposes, a 5.3% weighted-average annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2013. The rate was assumed to decrease gradually to 4.1% by 2033 and remain at that level thereafter.

The following table provides a sensitivity analysis of the key weighted average economic assumptions used in measuring the accrued pension benefit obligation, the accrued other post-retirement benefit
obligation and related net periodic benefit cost for 2013. The sensitivity analysis should be used with caution as it is hypothetical and changes in each key assumption may not be linear. The sensitivities in each key variable have been calculated
independently of each other.

Sensitivity Analysis

PENSION AND OTHER POST-RETIREMENTBENEFIT PLANS

PENSION

OTHER POST-RETIREMENT BENEFIT

ACCRUEDBENEFITOBLIGATION

NET PERIODICBENEFIT COST

ACCRUEDBENEFITOBLIGATION

NET PERIODICBENEFIT COST

(In millions of dollars)

Expected rate of return on assets

Impact of:

1% increase

N/A

($17)

N/A

N/A

1% decrease

N/A

17

N/A

N/A

Discount rate

Impact of:

1% increase

($179)

(19)

($12)

(1)

1% decrease

208

23

14

1

Assumed overall health care cost trend

Impact of:

1% increase

N/A

N/A

10

1

1% decrease

N/A

N/A

(9)

(1)

The assets of the pension plans are held by a number of independent trustees and are accounted for
separately in our pension funds. Our investment strategy for the assets in the pension plans is to maintain a diversified portfolio of assets, invest in a prudent manner to maintain the security of funds while maximizing returns within the
guidelines provided in the investment policy. Diversification of the pension plans holdings is maintained in order to reduce the pension plans annual return variability, reduce market exposure and credit exposure to any single issuer and
to any single component of the capital markets, to reduce exposure to unexpected inflation, to enhance the long-term risk-adjusted return potential of the pension plans and to reduce funding risk.

The following table shows the allocation of the plan assets, based on the fair value of the assets held and the target allocation for
2013:

Targetallocation

Percentage of planassets atDecember 31, 2013

Percentage of planassets atDecember 31, 2012

Fixed income

Cash and cash equivalents

0%  10%

3%

4%

Bonds

51%  61%

55%

55%

Equity

Canadian Equity

7%  15%

7%

11%

US Equity

8%  18%

14%

12%

International Equity

14%  24%

21%

18%

Total (1)

100%

100%

(1)

Approximately 83% of the pension plans assets relate to Canadian plans and 17% relate to U.S. plans.

Our pension plan funding policy is to contribute annually the amount required to provide for
benefits earned in the year, and to fund solvency deficiencies, funding shortfalls and past service obligations over periods not exceeding those permitted by the applicable regulatory authorities. Past service obligations primarily arise from
improvements to plan benefits. The other post-retirement benefit plans are not funded and contributions are made annually to cover benefit payments. We expect to contribute a minimum total amount of $24 million in 2014 compared to
$35 million in 2013 (2012  $86 million) to the pension plans. The payments made in 2013 to the other post-retirement benefit plans amounted to $10 million (2012  $7 million).

The estimated future benefit payments from the plans for the next ten years at December 31, 2013 are as follows:

Pension plans

Other post-retirementbenefit plans

2014

$

98

$

5

2015

100

5

2016

103

5

2017

108

6

2018

111

6

2019-2023

594

30

Asset Backed Notes

At December 31, 2013, our Canadian defined benefit pension funds held restructured asset backed notes (ABN) (formerly asset backed commercial paper) valued at $203 million
(CDN$216 million). At December 31, 2012, our plans held ABN valued at $213 million (CDN$211 million). During 2013, the total value of the ABN benefited from an increase in value of $23 million (CDN$24 million). For the
same period, the total value of the ABN was reduced by repayments and sales totalling $19 million (CDN$20 million), partially offset by the $14 million impact of an increase in the value of the Canadian dollar.

Most of these ABN, with a current value of $193 million (2012  $193 million; 2011  $178 million), were subject to
restructuring under the court order governing the Montreal Accord that was completed in January 2009. About $186 million of these notes are expected to mature in three years. These notes are valued based upon current market quotes. The market
values are supported by the value of the underlying investments held by the issuing conduit. The values for the $7 million of remaining ABN, that also were subject to the Montreal Accord, were sourced either from the asset manager of the ABN, or
from trading values for similar securities of similar credit quality.

An additional $10 million of ABN were restructured
separately from the Montreal Accord. They are valued based upon the value of the collateral investments held in the conduit issuer, reduced by the negative value of credit default derivatives, with an additional discount (equivalent 1.75% per
annum) applied for illiquidity. They are expected to mature in three years.

Possible changes that could impact the future
value of ABN include: (1) changes in the value of the underlying assets and the related derivative transactions, (2) developments related to the liquidity of the ABN market, (3) a severe and prolonged economic slowdown in North
America and the bankruptcy of referenced corporate credits, and (4) the passage of time, as most of the notes will mature in approximately three years.

Multiemployer Plans

We contributed to seven multiemployer defined benefit
pension plans under the terms of collective agreements that cover certain Canadian and U.S. unionized employees. As at December 31, 2013, we had withdrawn from all five U.S. multiemployer plans, and continued to participate in the two Canadian
plans. The

risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:

a)

assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;

b)

for the U.S. multiemployer plans, if a participating employer stops contributing to the plan, the unfunded obligations of the plan are borne by the remaining
participating employers; and

c)

for the U.S. multiemployer plans, if we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans an amount based on the
underfunded status of the plan, referred to as a withdrawal liability.

Our participation in these plans for the
annual periods ended December 31 is outlined in the table below. The plans 2013, 2012 and 2011 actuarial status certification was completed as of January 1, 2014, January 1, 2013, and January 1, 2012, respectively, and
is based on the plans actuarial valuation as of December 31, 2013, December 31, 2012, and December 31, 2011, respectively. This represents the most recent Pension Protection Act (PPA) zone status available. The
zone status is based on information received from the plan and is certified by the plans actuary. One significant plan is in the red zone, which means it is less than 65% funded and requires a financial improvement plan (FIP) or a
rehabilitation plan (RP).

Pension ProtectionAct Zone Status

Contributionsfrom Domtar
toMultiemployer(c)

Pension Fund

EIN / PensionPlan Number

2013

2012

FIP / RP StatusPending /Implemented

2013

2012

2011

Surchargeimposed

Expiration date ofcollective
barganingagreement

U.S. Multiemployer Plans

$

$

$

PACE Industry Union-

Management PensionFund (a)

11-6166763-001

Red

Red

Yes -Implemented



3

3

Yes

January 27, 2015

Canadian Multiemployer Plans

Pulp and Paper Industry

Pension Plan (b)

N/A

N/A

N/A

N/A

2

2

3

N/A

April 30, 2017

Total

2

5

6

Total contributions made to all plans that are not individually significant (d)

1

1

1

Total contributions made to all plans

3

6

7

(a)

We withdrew from the PACE Industry Union-Management Pension Fund effective December 31, 2012.

(b)

In the event that the Canadian multiemployer plan is underfunded, the monthly benefit amount can be reduced by the trustees of the plan. Moreover, we are not
responsible for the underfunded status of the plan because the Canadian multiemployer plans do not require participating employers to pay a withdrawal liability or penalty upon withdrawal.

(c)

For each of the three years presented, our contributions to each multiemployer plan do not represent more than 5% of total contributions to each plan as indicated in
the plans most recently available annual report.

(d)

On
July 31st, 2013, we withdrew from all the remaining
US multiemployer plans.

In relation to the withdrawal from one of our multiemployer pension plans in 2011,
we recorded an additional charge to earnings of $1 million due to a change in the estimated withdrawal liability during the first quarter of 2013. During the second and third quarter of 2013, we withdrew from our remaining U.S. multiemployer pension
plans and recorded a withdrawal liability and a charge to earnings of $14 million, of which $3 million is recorded in Closure and restructuring cost and $11 million related to the sale of our Ariva

U.S. business included in Other operating loss (income), net on the Consolidated Statement of Earnings and Comprehensive Income. At December 31, 2013, the total provision for the withdrawal
liabilities is $63 million. While this is our best estimate of the ultimate cost of the withdrawal from these plans at December 31, 2013, additional withdrawal liabilities may be incurred based on the final fund assessment and in the events of a
mass withdrawal, as defined by statute, occurring anytime within the next three years. Refer to Part II, Item 8, Financial Statement and Supplementary Data of this Annual Report on Form 10-K, under Note 16 Closure and Restructuring Costs
and Liability.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined according to differences between the carrying amounts and tax
bases of the assets and liabilities. The change in the net deferred tax asset or liability is included in earnings. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to apply in the years in which assets and
liabilities are expected to be recovered or settled. For these years, a projection of taxable income and an assumption of the ultimate recovery or settlement period for temporary differences are required. The projection of future taxable income is
based on managements best estimate and may vary from actual taxable income.

On a quarterly basis, we assess the need to
establish a valuation allowance for deferred tax assets and, if it is deemed more likely than not that our deferred tax assets will not be realized based on these taxable income projections, a valuation allowance is recorded. In general,
realization refers to the incremental benefit achieved through the reduction in future taxes payable or an increase in future taxes refundable from the deferred tax assets. Evaluating the need for an amount of a valuation allowance for
deferred tax assets often requires significant judgment. All available evidence, both positive and negative, should be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed.

In our evaluation process, we give the most weight to historical income or losses. After evaluating all available positive and negative
evidence, although realization is not assured, we determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, with the exception of certain state
credits and losses for which a valuation allowance of $4 million exists at December 31, 2013, and certain foreign loss carryforwards for which a valuation allowance of $15 million exists at December 31, 2013. Of this amount, $5 million
impacted tax expense and the effective tax rate for 2013 ($1 million  2012; nil  2011).

Our short-term deferred
tax assets are mainly composed of temporary differences related to various accruals, accounting provisions, as well as a portion of our net operating loss carryforwards and available tax credits. The majority of these items are expected to be
utilized or paid out over the next year. Our long-term deferred tax assets and liabilities are mainly composed of temporary differences pertaining to plant, equipment, pension and post-retirement liabilities, the remaining portion of net operating
loss carryforwards and other tax attributes, and other items. Estimating the ultimate settlement period requires judgment and our best estimates. The reversal of timing differences is expected at enacted tax rates, which could change due to changes
in income tax laws or the introduction of tax changes through the presentation of annual budgets by different governments. As a result, a change in the timing and the income tax rate at which the components will reverse could materially affect
deferred tax expense in our future results of operations.

In addition, U.S. and foreign tax rules and regulations are subject
to interpretation and require judgment that may be challenged by taxation authorities. To the best of our knowledge, we have adequately provided for our future tax consequences based upon current facts and circumstances and current tax law. In
accordance with Income Taxes Topic of FASB ASC 740, we evaluate new tax positions that result in a tax benefit to us and determine the amount of tax benefits that can be recognized. The remaining unrecognized tax benefits are evaluated on a
quarterly basis to determine if changes in recognition or classification are necessary. Significant changes in the amount of unrecognized tax benefits expected within the next 12 months are disclosed quarterly. Future recognition of unrecognized tax
benefits would impact the effective tax rate in the period the benefits are

recognized. At December 31, 2013, we had gross unrecognized tax benefits of $259 million. If our income tax positions with respect to the alternative fuel tax credits are sustained, either
all or in part, then we would recognize a tax benefit in the future equal to the amount of the benefits sustained.

Closure and
Restructuring Costs

Closure and restructuring costs are recognized as liabilities in the period when they are incurred and
are measured at their fair value. For such recognition to occur, management, with the appropriate level of authority, must have approved and committed to a firm plan and appropriate communication to those affected must have occurred. These
provisions may require an estimation of costs such as severance and termination benefits, pension and related curtailments, environmental remediation and may also include expenses related to demolition and outplacement. Actions taken may also
require an evaluation of any remaining assets to determine required write-downs, if any, and a review of estimated remaining useful lives which may lead to accelerated depreciation expense.

Estimates of cash flows and fair value relating to closures and restructurings require judgment. Closure and restructuring liabilities
are based on managements best estimates of future events at December 31, 2013. Closure and restructuring cost estimates are dependent on future events. Although we do not anticipate significant changes, the actual costs may differ from
these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further working
capital adjustments may be required in future periods.

For details, refer to Part II, Item 8, Financial Statements and
Supplementary Data, under Note 16 Closure and Restructuring Costs and Liability of this Annual Report on Form 10-K.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our income can be impacted by the following sensitivities:

SENSITIVITY ANALYSIS

(In millions of dollars, unless otherwise noted)

Each $10/unit change in the selling price of the following products1:

Papers

Business Papers

$

12

Converting & Publishing

9

Commercial Printing

7

Other

5

Pulpnet position

Softwood

$

10

Fluff

4

Hardwood

2

Foreign exchange, excluding depreciation and amortization(US $0.01 change in relative value to the Canadian dollar
before hedging)

10

Energy
2

Natural gas: $0.25/MMBtu change in price before hedging

4

1

Based on estimated 2014 capacity (ST or ADMT).

2

Based on estimated 2014 consumption levels. The allocation between energy sources may vary during the year in order to take advantage of market conditions.

Note that we may, from time to time, hedge part of our foreign exchange, pulp, interest rate and energy
positions, which may therefore impact the above sensitivities.

In the normal course of business, we are exposed to certain financial
risks. We do not use derivative instruments for speculative purposes; although all derivative instruments purchased to minimize risk may not qualify for hedge accounting.

INTEREST RATE RISK

We are exposed to interest rate risk arising from
fluctuations in interest rates on our cash and cash equivalents, bank indebtedness, bank credit facility and long-term debt. We may manage this interest rate exposure through the use of derivative instruments such as interest rate swap contracts.

CREDIT RISK

We are exposed to credit risk on the accounts receivable from our customers. In order to reduce this risk, we review new customers
credit history before granting credit and conduct regular reviews of existing customers credit performance. As of December 31, 2013, one of our Pulp and Paper segment customers located in the United States represented 12% ($73 million)
((2012  11% ($64 million)) of our total receivables.

We are also exposed to credit risk in the event of non-performance
by counterparties to our financial instruments. We minimize this exposure by entering into contracts with counterparties that we believe to be of high credit quality. Collateral or other security to support financial instruments subject to credit
risk is usually not obtained. We regularly monitor the credit standing of counterparties. Additionally, we are exposed to credit risk in the event of non-performance by our insurers. We minimize our exposure by doing business only with large
reputable insurance companies.

COST RISK

Cash flow hedges

We purchase natural gas at the prevailing market price at
the time of delivery. In order to manage the cash flow risk associated with purchases of natural gas, we may utilize derivative financial instruments or physical purchases to fix the price of forecasted natural gas purchases. We formally document
the hedge relationships, including identification of the hedging instruments and the hedged items, the risk management objectives and strategies for undertaking the hedge transactions, and the methodologies used to assess effectiveness and measure
ineffectiveness. Current contracts are used to hedge forecasted purchases over the next 48 months. The effective portion of changes in the fair value of derivative contracts designated as cash flow hedges is recorded in Other comprehensive income,
and is recognized in Cost of sales in the period in which the hedged transaction occurs.

The following table presents the
volumes under derivative financial instruments for natural gas contracts outstanding as of December 31, 2013 to hedge forecasted purchases:

The natural gas derivative contracts were fully effective for accounting purposes as of
December 31, 2013. The critical terms of the hedging instruments and the hedged items match. As a result, there were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income and Other comprehensive income for the
year ended December 31, 2013 resulting from hedge ineffectiveness (2012 and 2011  nil).

FOREIGN CURRENCY RISK

Cash flow hedges

We have
manufacturing operations in the United States, Canada, Sweden and China. As a result, we are exposed to movements in foreign currency exchange rates in Canada, Europe and Asia. Moreover, certain assets and liabilities are denominated in currencies
other than the U.S. dollar and are exposed to foreign currency movements. Therefore, our earnings are affected by increases or decreases in the value of the Canadian dollar and of other European and Asian currencies relative to the U.S. dollar. Our
Swedish subsidiary is exposed to movements in foreign currency exchange rates on transactions denominated in a different currency than its Euro functional currency. Our risk management policy allows it to hedge a significant portion of its exposure
to fluctuations in foreign currency exchange rates for periods up to three years. We may use derivative instruments (currency options and foreign exchange forward contracts) to mitigate our exposure to fluctuations in foreign currency exchange rates
or to designate them as hedging instruments in order to hedge the subsidiarys cash flow risk for purposes of the consolidated financial statements.

We formally document the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions. Foreign exchange
currency options contracts used to hedge forecasted purchases in Canadian dollars by the Canadian subsidiary and forecasted sales in British Pound Sterling and forecasted purchases in U.S. dollars by the Swedish subsidiary are designated as
cash flow hedges. Current contracts are used to hedge forecasted sales or purchases over the next 12 months. The effective portion of changes in the fair value of derivative contracts designated as cash flow hedges is recorded in Other comprehensive
income and is recognized in Cost of sales or in Sales in the period in which the hedged transaction occurs.

The following
table presents the currency values under contracts pursuant to currency options outstanding as of December 31, 2013 to hedge forecasted purchases:

Contract

Notional contractual value

Percentage of forecasted net exposuresunder contracts for2014

Currency options purchased

CDN

$

425

53

%

USD

$

26

82

%

GBP

£

16

79

%

Currency options sold

CDN

$

425

53

%

USD

$

26

82

%

GBP

£

16

79

%

The currency options are fully effective as at December 31, 2013. The critical terms of the hedging
instruments and the hedged items match. As a result, there were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the year ended December 31, 2013 resulting from hedge ineffectiveness (2012 and 2011
 nil).

The accompanying Consolidated Financial Statements of Domtar Corporation and its subsidiaries (the Company) were prepared by management. The statements were prepared in accordance with
accounting principles generally accepted in the United States of America and include amounts that are based on managements best judgments and estimates. Management is responsible for the completeness, accuracy and objectivity of the financial
statements. The other financial information included in the annual report is consistent with that in the financial statements.

Management has
established and maintains a system of internal accounting and other controls for the Company and its subsidiaries. This system and its established accounting procedures and related controls are designed to provide reasonable assurance that assets
are safeguarded, that the books and records properly reflect all transactions, that policies and procedures are implemented by qualified personnel, and that published financial statements are properly prepared and fairly presented. The
Companys system of internal control is supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as
they are identified.

Managements Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the
effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the criteria established in Internal Control  Integrated Framework, issued in 1992 by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Companys system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. The Companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements.

Management has excluded Associated Hygienic Products LLC (AHP) from the assessment of internal control over financial reporting as of
December 31, 2013 because it was acquired by the Company in a business combination during 2013. The assets and revenues of this business represent 2% and 2%, respectively, of the related consolidated financial statement amounts as of and for
the year ended December 31, 2013.

Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Based on the assessment, management has concluded that the Company maintained effective internal control over
financial reporting as of December 31, 2013, based on criteria in Internal Control  Integrated Framework issued in 1992 by the COSO.

The effectiveness of the Companys internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting
firm, as stated in their report, which is included herein.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings and comprehensive income, shareholders equity and cash flows present fairly, in all
material respects, the financial position of Domtar Corporation and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly,
in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2013, based on criteria established in Internal ControlIntegrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys
management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule and on the Companys internal
control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Managements Report on Internal Control over Financial Reporting, management has excluded Associated Hygienic Products,
LLC (AHP) from its assessment of internal control over financial reporting as of December 31, 2013 because it was acquired by the Company in a purchase business combination during 2013. We have also excluded AHP from our audit of
internal control over financial reporting. AHP is a wholly-owned

Domtar designs, manufactures,
markets and distributes a wide variety of fiber-based products including communications papers, specialty and packaging papers and absorbent hygiene products. The foundation of its business is the efficient operation of pulp mills, converting fiber
into paper grade, fluff and specialty pulps. The majority of this pulp production is consumed internally to make communication papers and specialty and packaging papers and personal care products with the balance sold as a market pulp. Domtar is the
largest integrated marketer and manufacturer of uncoated freesheet paper in North America, serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end-users. In addition, Domtar is also a
leading marketer and producer of a broad line of incontinence care products marketed primarily under the
Attends® brand names as well as baby diapers. The Company also owns and operates Ariva®, a network of strategically located paper distribution facilities in Canada.

ACCOUNTING PRINCIPLES

The Companys consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP). The consolidated financial statements include the accounts of Domtar Corporation and its controlled subsidiaries. Significant intercompany transactions have been eliminated on consolidation. Investment in
an affiliated company, where the Company has joint control over their operations, is accounted for by the equity method. The Companys share of equity earnings totaled a loss, net of taxes, of $1 million.

USE OF ESTIMATES

The
consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the year, the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. On an ongoing basis, management reviews the estimates and assumptions, including but not limited to those related to closure
and restructuring costs, income taxes, useful lives, asset impairment charges, goodwill and intangible asset impairment assessment, environmental matters and other asset retirement obligations, pension and other post-retirement benefit plans and,
commitments and contingencies, based on currently available information. Actual results could differ from those estimates.

TRANSLATION OF
FOREIGN CURRENCIES

The Company determines its international subsidiaries functional currency by reviewing the
currencies in which their respective operating activities occur. The Company translates assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using the rate in effect at the balance sheet date and

revenues and expenses are translated at the average exchange rates during the year. Foreign currency translation gains and losses are included in Shareholders equity as a component of
Accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets.

Monetary assets and liabilities
denominated in a currency that is different from a reporting entitys functional currency must first be remeasured from the applicable currency to the legal entitys functional currency. The effect of this remeasurement process is
recognized in the Consolidated Statements of Earnings and Comprehensive Income and is partially offset by our economic hedging program (refer to Note 23 Derivatives and hedging activities and fair value measurement).

Domtar Corporation recognizes revenues when pervasive evidence of an arrangement exists, the customer takes title and assumes the risks and rewards of ownership, the sales price charged is fixed or
determinable and when collection is reasonably assured. Revenue is recorded at the time of shipment for terms designated free on board (f.o.b.) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded
when the product is delivered to the customers delivery site, when the title and risk of loss are transferred.

SHIPPING AND HANDLING
COSTS

The Company classifies shipping and handling costs as a component of Cost of sales in the Consolidated Statements of
Earnings and Comprehensive Income.

CLOSURE AND RESTRUCTURING COSTS

Closure and restructuring costs are recognized as liabilities in the period when they are incurred and are measured at their fair value.
For such recognition to occur, management, with the appropriate level of authority, must have approved and committed to a firm plan and appropriate communication to those affected must have occurred. These provisions may require an estimation of
costs such as severance and termination benefits, pension and related curtailments, environmental remediation and may also include expenses related to demolition and outplacement. Actions taken may also require an evaluation of any remaining assets
to determine required write-downs, if any, and a review of estimated remaining useful lives which may lead to accelerated depreciation expense.

Estimates of cash flows and fair value relating to closures and restructurings require judgment. Closure and restructuring liabilities are based on managements best estimates of future events at
December 31, 2013. Closure and restructuring cost estimates are dependent on future events. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates due to subsequent developments such as
the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further working capital adjustments may be required in future periods.

Domtar Corporation uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined according to differences between the carrying
amounts and tax bases of the assets and liabilities. The Company records its worldwide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. The change in the net deferred tax asset or liability
is included in Income tax expense or in Other comprehensive income (loss) in the Consolidated Statements of Earnings and Comprehensive Income. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to apply in the
years in which the assets and liabilities are expected to be recovered or settled. Uncertain tax positions are recorded based upon the Companys evaluation of whether it is more likely than not (a probability level of more than
50 percent) that, based upon its technical merits, the tax position will be sustained upon examination by the taxing authorities. The Company establishes a valuation allowance for deferred tax assets when it is more likely than not that they will
not be realized. In general, realization refers to the incremental benefit achieved through the reduction in future taxes payable or an increase in future taxes refundable from the deferred tax assets.

The Company recognizes interest and penalties related to income tax matters as a component of Income tax expense (benefit) in the
Consolidated Statements of Earnings and Comprehensive Income.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and short-term investments with original maturities of less than three months and are presented at
cost which approximates fair value.

RECEIVABLES

Receivables are recorded net of a provision for doubtful accounts that is based on expected collectability. The securitization of receivables is accounted for as secured borrowings. Accordingly, financing
expenses related to the securitization of receivables are recognized in earnings as a component of Interest expense in the Consolidated Statements of Earnings and Comprehensive Income.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost
includes labor, materials and production overhead. The last-in, first-out (LIFO) method is used to cost certain U.S. raw materials, in process and finished goods inventories. LIFO inventories were $215 million and $264 million
at December 31, 2013 and 2012, respectively. The balance of U.S. raw material inventories, all materials and supplies inventories and all foreign inventories are costed at either the first-in, first-out (FIFO) or average cost
methods. Had the inventories for which the LIFO method is used been valued under the FIFO method, the amounts at which product inventories are stated would have been $72 million and $62 million greater at December 31, 2013 and 2012,
respectively.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation including asset impairment write-downs. Interest costs are capitalized for significant capital projects. Amortization is
calculated using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are amortized over periods of 10 to 40 years and machinery and equipment over periods of 3 to 20 years. No
depreciation is recorded on assets under construction.

Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the carrying value
of the assets may not be recoverable, as measured by comparing the net book value of the asset group to their estimated undiscounted future cash flows. Impaired assets are recorded at estimated fair value, determined principally by using discounted
future cash flows expected from their use and eventual disposition (refer to Note 4 Impairment and write-down of property, plant and equipment and intangible assets).

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is not amortized and is
evaluated at the beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. The Company performs the impairment test of goodwill at its reporting unit level. The Company has the option to
first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, the Company identifies the relevant drivers of fair
value of a reporting unit and the relevant events and circumstances that may have an impact on those drivers of fair value. This process involves significant judgement and assumptions including the assessment of the results of the most recent fair
value calculations, the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific events affecting the Company and the business, and making the assessment on whether each
relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of
a reporting unit is less than its carrying amount, then it performs Step I of the two-step impairment test. The Company can also elect to bypass the qualitative assessment and proceed directly to the Step 1 of the impairment test.

The first step is to compare the fair value of a reporting unit to its carrying amount, including goodwill. The Company uses a discounted
cash flow model to determine the fair value of a reporting unit. The assumptions used in the model are consistent with those we believe hypothetical marketplace participants would use. In the event that the net carrying amount exceeds the fair value
of the business, the second step of the impairment test must be performed in order to determine the amount of the impairment charge. Fair value of goodwill in Step II of the impairment test is estimated in the same way as goodwill was determined at
the date of the acquisition in a business combination, that is, the excess of the fair value of the reporting unit over the fair value of the identifiable net assets of the business.

All goodwill as of December 31, 2013 resides in the Personal Care reporting segment, and originates from the acquisitions of Attends
Healthcare Inc. on September 1, 2011, Attends Healthcare Limited on March 1, 2012, EAM Corporation on May 10, 2012 and AHP on July 1, 2013. Please refer to Note 3 Acquisition of businesses for additional information
regarding these acquisitions.

Indefinite-lived intangible assets are not amortized and are evaluated at the beginning of the
fourth quarter of every year, or more frequently whenever indicators of potential impairment exist. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of
indefinite-lived intangible assets are less than their carrying amounts. The qualitative assessment follows the same process

as the one performed for goodwill, as described above. If, after assessing the qualitative factors, the Company determines that it is more likely than not that the indefinite-lived intangible
assets are less than their carrying amounts, then an impairment test is required. The Company can also elect to proceed directly to the quantitative test. The quantitative impairment test consists of comparing the fair value of the indefinite-lived
intangible assets determined using a variety of methodologies to their carrying amount. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment loss is recognized in an amount equal to that excess.
Indefinite-lived intangible assets include trade names related to Attends® and license rights related to Xerox.
The Company reviews its indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support indefinite useful lives.

Definite lived intangible assets are stated at cost less amortization and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be
recoverable. Definite lived intangible assets include water rights, customer relationships, technology, trade names, supplier and non-compete agreements as well as licensing rights, which are being amortized using the straight-line method over their
estimated useful lives. Any potential impairment for definite lived intangible assets will be calculated in the same manner as that disclosed under impairment of long-lived assets.